An activist investor pushing to overhaul Dye & Durham Ltd.’s DND-T board is offering to drop its request for a special meeting since it is likely to happen close to the AGM, where the hedge fund can propose its changes instead.
New York-based Engine Capital LP, which owns 7.1 per cent of the Toronto real estate software company’s stock, earlier this year had called for a special meeting so shareholders could vote on its proposal to remove former chair Brian Derksen, chair Colleen Moorehead and a third director, Leslie O’Donoghue, and replace them with its nominees. (Ms. O’Donoghue subsequently resigned this summer. Another activist, Blacksheep Fund Management, also plans to put forward a nominee.)
The meeting was postponed from its original Aug. 20 date because of litigation from another activist, ex-chairman Tyler Proud, brother of D&D CEO Matt Proud. Tyler Proud’s holding company, OneMove Capital Ltd., had asked Ontario Superior Court to force D&D to add its proposal to the meeting to vote off his prior nominee to the board, Ted Prittie, and replace him with hedge-fund manager Eric Shahinian.
Under an investor rights agreement, OneMove is entitled to nominate a director who isn’t himself at shareholder meetings, but lacks the unilateral right to remove his nominee.
Justice Michael Penny ruled last week that a shareholder seeking to remove a director can request a special meeting but can’t add a “tagalong” proposal to a different meeting. D&D then rescheduled the Engine meeting to Dec. 10. D&D typically holds its annual general meeting the week before Christmas.
Engine said in a release Wednesday that a special meeting is no longer necessary or advisable given “the significant delay and redundant cost that would be borne by shareholders” by holding two meetings so close together. Rather than risk delaying the AGM, Engine said it is willing to withdraw its special meeting request and instead seek board changes at the later meeting – “if the company schedules its 2024 AGM in December per its usual practices.”
D&D responded with a tart news release that said nothing about Engine’s offer, indicating the special meeting is still set for Dec. 10. It said nothing about the AGM.
Instead, it accused Engine of pursuing a “rapidly shifting and misleading narrative,” saying the special meeting was called promptly and “delayed by baseless litigation.” D&D reiterated its past criticism that Engine “fundamentally does not understand the company or its business.” D&D pointed to its debt refinancing this year, which reduced its debt service, extended maturities and enabled it to make an early repayment this month, as examples of positive efforts it made against Engine’s advice.
D&D alleged there were “serious concerns” about Engine and other activists, claiming they were in “relentless pursuit of control” and that their actions may be in breach of takeover laws in Britain and Australia, where it operates.
Engine stated it received a legal letter from D&D last Friday threatening activist investors “based on completely frivolous claims” about foreign regulatory issues, calling them “entirely irrelevant to our valid shareholdings under Canadian law. This is yet another example of the board’s level of entrenchment and only underscores the urgent need for change.”
Legal battle that could upend Dye & Durham board pits founding brothers against each other
OneMove, in an e-mailed statement after the duelling releases from Engine and D&D, said “it’s telling that Dye & Durham’s press release today was entirely silent on the company’s intention to hold the regularly scheduled AGM this calendar year.
“When will these so-called independent directors face shareholders and stop wasting company resources to silence criticism with defensive tactics?”
The coming months could see a shift in D&D’s direction, if Engine prevails in getting its nominees onto the seven-person board and Tyler Proud nominates a fourth director to replace Mr. Prittie at the AGM, which he can still do.
D&D has been dogged by controversy since it went public in 2020. Its penchant for buying legal software companies with dominant competitive positions and then sharply hiking prices has angered clients. An attempted multibillion-dollar takeover of an Australian company failed. Britain’s competition regulator forced it to divest a purchase.
Court filings in the case that pitted the Proud brothers against each other show Tyler Proud and other shareholders grew frustrated with D&D’s strategic direction, mounting debt, pace of acquisitions and board oversight over management over the past two years. Several investors, including his holding company, pushed Mr. Derksen, when he was chair, to resign last fall, then withheld their support for him at the AGM when he didn’t.
Tyler Proud told the court he lost confidence in Mr. Prittie this year after learning a search for a new chair wasn’t being conducted by the board’s corporate, governance and nominating committee but by his brother and Mr. Derksen, and after D&D did a dilutive stock offering months after buying back shares at a higher price.