Dye & Durham Ltd. is putting a sale of the company on hold after a pair of institutional shareholders told its representatives they wouldn’t vote in favour of conditional deals on the table, a source familiar with the situation said.
The Toronto legal software company announced early Wednesday it was pausing the “well-advanced process” after receiving “significant inbound interest” from multiple bidders “at attractive premiums to the market price of its shares.” D&D stock closed up 13 per cent Tuesday to $17.99 after the the Australian Financial Review reported one of the bidders was Melbourne-based PEXA Group Ltd. D&D and Pexa both declined to comment. The stock rose a further 2.3 per cent to 18.42 Wednesday.
The company blamed an activist campaign led by dissident shareholder Engine Capital LP as well as feedback to the process from a select group of its shareholders for the pause in the sale process. Engine, which has a 7.1 per cent stake in D&D, is proposing a six-person slate at the Dec. 17 board of directors, to counter a slate of mostly new directors proposed by D&D for the seven spots on its board. If Engine prevails, it could lead to the departure of chief executive officer Matt Proud, the hedge fund has intimated in recent statements.
The source said D&D received four conditional takeover bids, all in the low- to mid-$20s range, in the second round of a process being handled by investment bank Goldman Sachs. One of the bids came from Pexa while three came from North American private-equity firms, the source said.
But when company representatives approached two of D&D’s largest shareholders, Mawer Investment Management and EdgePoint Wealth Management, to gauge whether they would agree to bids in the $20s – which included the prospect of rolling some of their shares over in a transaction – they came away feeling the company wouldn’t necessarily get their support for a deal. Mawer portfolio manager Samir Taghiyev confirmed in an interview that he told Mr. Proud, the CEO, in recent weeks that he felt the company was potentially worth more, adding that he wasn’t briefed on any specific bids.
Both fund managers were critical of management and the board in private meetings a year ago and pushed then-chairman Brian Derksen to resign. When he didn’t they withheld their support for him at last December’s annual meeting, although he still won enough votes to be re-elected. Mr. Derksen has since stepped down as chairman and isn’t on either slate for the upcoming meeting. Mawer was also one of two shareholders that told the company it would withhold support for two directors that had been involved in offering a rich compensation package to the CEO in 2021, prompting them to not run again at last year’s annual meeting.
The source said the fund managers told the company they planned to vote for Engine’s slate, and the company concluded it wouldn’t get the two-thirds support required to approve any of the bids. The Globe and Mail is not identifying the source as they are not authorized to discuss the matter. A call to Edgepoint was not returned.
It has been a raucous 12 months for D&D, including three other governance challenges, a debt refinancing, a large staff cut and a continuing investigation by the Competition Bureau for alleged trade-restricting practices.
Engine originally sought to replace three of D&D’s seven directors with its own nominees at a special meeting. But the meeting was postponed because of a separate court challenge by another dissatisfied D&D shareholder, ex-chairman Tyler Proud, brother of the CEO. Earlier this month Engine expanded its challenge, proposing to replace nearly the entire board with a six-person slate at D&D’s annual meeting and rebuild the management team.
Several large investors, including Tyler Proud, have expressed growing discontent in the past two years over D&D’s leverage, pace of acquisitions, board oversight over management and rich compensation to the CEO while its stock has remained at depressed levels. The company has defended its performance and track record and promised to reduce its debt, now at 5.2 times operating earnings, to below four-times while continuing to pursue strategic acquisitions and sell non-core assets.
Editor’s note: An earlier version of this story incorrectly stated Goldman Sachs approached two shareholders to gauge their potential support for the bids on the table. Dye & Durham CEO Matt Proud spoke with Mawer Investment Management portfolio manager Samir Taghiyev to gauge whether he would be interested in selling the company at a price in the $20s per share. The story has been updated.