Dye & Durham Ltd. DND-T has made peace with one of its dissident shareholders, giving it a seat on the company’s seven-person board and sway over the nomination of another director. It’s the second time in a year the legal software company has capitulated to unhappy shareholders to make board changes, but it still faces pressure from two more dissidents seeking further changes.
The Toronto company said in a press release Tuesday that it had reached a “co-operation agreement” with Blacksheep Fund Management Ltd., which owns 5.9 per cent of the stock. The deal gives the Dublin-based hedge fund the right to designate one person to D&D’s board, which it had sought.
D&D said the two parties have also agreed to mutually identify a new independent director nominee with experience relevant to its business. Board chair Colleen Moorehead praised Blacksheep “for its constructive and thoughtful engagement” and said the deal “provides for additional board refreshment” while letting D&D focus on creating value.
Blacksheep chief investment officer Alex Fortune stated his firm was “confident” the new directors would be “world-class additions – disciplined capital allocators who can support the board and management.”
Blacksheep is one of three investors to push for board changes this year. Last month D&D accused Blacksheep, New York hedge fund Engine Capital LP, Toronto asset manager EdgePoint Wealth Management and OneMove Capital Ltd. – controlled by ex-D&D chairman Tyler Proud, brother of chief executive officer Matt Proud – of “continued and aggressive attempts” to gain control of the board. Engine owns 7.1 per cent of the stock, Edgepoint has 15 per cent and OneMove 8.4 per cent.
But Tuesday’s release struck a new tone. It stated D&D “acknowledges that Blacksheep has engaged constructively throughout the process with the board and management team, for the benefit of all stakeholders.”
Toronto corporate lawyer Philip Anisman, who isn’t involved in the situation, said the deal helps D&D consolidate support, giving the incumbents “a slightly stronger position. It all depends on what other negotiations are going on.”
It has otherwise been a combative year for D&D, and recent statements by Engine, OneMove and the company suggest considerable acrimony prevails. Engine has called for a special meeting for shareholders to vote on its proposal to remove former chair Brian Derksen, Ms. Moorehead and a third director, Leslie O’Donoghue, and replace them with its nominees. Ms. O’Donoghue subsequently resigned this summer, and Blacksheep’s appointee will likely fill that void.
D&D scheduled the meeting for Aug. 20 but postponed after OneMove tried to force D&D to add a proposal of its own: To vote off its prior nominee to the board, Ted Prittie, and replace him with a hedge fund manager.
Under an investor rights agreement, OneMove is entitled to nominate a director who isn’t Tyler Proud at shareholder meetings but lacks the unilateral right to remove its nominee. Tyler Proud told the court he lost confidence in Mr. Prittie after learning a search for a new chair wasn’t being conducted by the proper board 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. After asking Mr. Prittie to quit to no avail, Tyler Proud tried to piggyback on Engine’s meeting with OneMove’s own proposal.
But an Ontario Superior Court justice ruled last month OneMove couldn’t do that and would have to request a separate meeting. Instead, OneMove is expected to wait to nominate a new director at the annual general meeting. D&D rescheduled a special meeting for Dec. 10, but Engine offered to drop it since the gathering would likely happen so close to the AGM, which is usually held just before Christmas. Late Tuesday, D&D announced the AGM would indeed be held on Dec. 17, and that it had consented to Engine’s request – while criticizing the dissidents’ “unreasonable and ever-shifting demands.”
Court filings show Tyler Proud and other investors grew increasingly frustrated with D&D’s strategic direction, mounting debt, pace of acquisitions and board oversight over management over the past two years.
Last fall, OneMove and Mawer Investment Management told the board they wouldn’t vote for two board compensation committee members that had recommended a huge equity award for the CEO, approved by investors in December, 2021. That prompted the two directors to withdraw their names from the 2023 slate. In their place, candidates suggested by Mawer and Edgepoint – Ms. Moorehead and Peter Brimm – were nominated and elected.
Mawer, EdgePoint, OneMove and PenderFund Capital Management also urged Mr. Derksen to resign during a meeting last November. When he didn’t, they withheld votes for him at the AGM, though he still won.
D&D has created a lot of drama since its IPO. Its penchant for buying legal software companies with dominant competitive positions 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. D&D has taken steps to ease its heavy debt load and cut costs. But its stock continues to languish well off its peak.