What Carl Bass Said About Activist Investors

The ghost of "Chainsaw" Al comes a'knocking

 

Activist investors want to maximize the profit of public companies, ie, ones that sell shares to the public. Once investors have at least 5% of the company's shares, they can get a seat on the board of directors. Once on the board of directors, they can influence the direction of the company with the sole aim of increasing the value of  shares.

For example, Autodesk's M&E (media & entertainment) division has been for many years doing poorly, with sales falling year after year. Autodesk keeps it around for all the Oscars the software wins, but activist investors might be inclined to sell it off, because the poor sales are likely weighing down the ADSK share price.

At the end of Autodesk's Q4 conference call, the company ceo made this unscripted statement against activist investors. The comments, however, did not change subsequent events; see the postscript. Big changes could be coming to Autodesk after September 30.

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Carl Bass (President, Chief Executive Officer & Director of Autodesk):  I just wanted to say one thing, I kind of hesitate to do it, because it's all been going so swimmingly. But I am really just trying to avoid work for Dave [Gennarelli, director of investor relations] and Scott [Herren, Autodesk CFO] and I over the next couple of days, in having the same conversations several dozen different times, Because I have had it in private, even as I go down to the coffee store, I get asked by all the investors in our building. And that's just the question of what's going on with our activist investors. And so, I just want to take that head on, I'm happy to talk about it privately with others, but it seems like a mistake not to address it to some degree. So, let me just give you my viewpoint on this.

The first thing is that I think a number of the 13D filers [people who report owning more than 5% of a company's stock] -- as well as some of the activist investors -- have raised legitimate concerns. The one part that kind of troubles me about it is that there are other long-term investors, really constructive investors, who have raised the same issues in a much better way. And so while we are absolutely talking to the activist investors, I think too much credit is being given to them and not enough credit is being given to our long-term investors, who have asked for a change in a constructive way. They've understood kind of the subtleties and complexities of running a business and they truly have taken the time to understand what the challenges and the opportunities we face. And so, I feel like they're getting the short-end of the stick, when they've really pulled the laboring war in supporting the company over the long period.

Many of my problems with some of the more activist investors is that their focus is extremely short-term and somewhat simplistic. They just ignore some of the complexities of running a business. And let's just get to a lighter note for a second (and then I will return to being more serious): let me just tell you what my concern is.

It's that it's easy to sit on the outside and have lots of good ideas how to do this or that thing better, or why things should move more quickly. As a matter of fact, if you turn on sports radio or political talk radio, you can hear thousands of people who know what the coach or general manager or the owner should have done differently and I'm worried about that [attitude that says,] "I watched the game last night, I had a million ideas of what the coach should do," but I didn't actually have to do the job.

So in a nutshell, my concern is people who essentially want to turn Autodesk into Men's Wearhouse. [For background on why Mr Bass is referencing to this company, see "Men’s Wearhouse, George Zimmer is waiting for your call" at http://www.businessinsider.com/mens-wearhouse-founder-zimmer-interview-2015-12.] It you look, I don't think any of the people who got involved in Men's Wearhouse intentionally meant to do damage to the company. I don't think they meant to screw it up, but I think they had some simplistic views, and what troubles me is seeing those same views expressed about our business.

Actually I got one little funny story here. I looked at Men's Wearhouse the other day and they had changed the name of the company and the symbol. What I thought was interesting is changing the name makes it actually hard to track the price and how poorly it's performed. But the symbol is a little bit of a telltale sign because if you just look at it, it's spelled TURD, it's actually TLRD, but it's what it looks like, and it's probably more like it.

So, let me just try to end this on a more serious note. We are talking to the activists. We would like to shift the conversation to the active investors through more constructive dialogue. There is certainly a possibility that together we can do that. And most importantly, I just want to say thank you to our long-term shareholders who have understood what the challenges are, but really the fantastic opportunities the company has.

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Subsequent to this conference call on February 25, 2016, Autodesk on March 11 placed three activist directors on its board. The activists have promised to take no action until September 30. After that, Autodesk could experience profound change. See http://www.reuters.com/article/us-autodesk-investors-idUSKCN0WD1N7 for details on how the new directors arrived on the board.

We know the general plans of these activists: they want to make "changes to management, operations, cost structure, and strategic plans." The actions are intended to drive up the ADSK share price. Most commonly this involves selling off poorly performing divisions, halting unprofitable programs, and axing executives.

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Source of the quotation by Mr Bass: http://seekingalpha.com/article/3933036-autodesk-adsk-carl-bass-q4-2016-results-earnings-call-transcript

Comments

[Dan]

Activist Investors are why some companies are issuing non voting shares