A growing rift that pits the two brothers behind Dye & Durham Ltd. DND-T against each other has escalated into a nasty court battle as the legal software company attempts to fend off a revolt by dissident investors.
How Ontario Superior Court Justice Peter Osborne rules on a dispute between ex-chairman and chief strategy officer Tyler Proud and Toronto-based D&D, led by his brother, Matthew Proud, could open the door to changes at the board, giving dissidents control of the acquisition-fuelled, heavily indebted company.
Court filings reveal raw, at times personal tensions over D&D’s leadership, strategy and performance, building on rival news releases from the two camps this month. Exhibits filed by Tyler Proud’s private holding company OneMove Capital Ltd. include an insulting, obscenity-laced text sent to him by then-D&D chief legal officer Charlie MacCready in April. D&D’s litigation counsel Joseph Groia said in a letter to OneMove’s counsel the texts came from “Mr. [MacCready] in his capacity as a shareholder expressing his significant concerns” and were “not made in any corporate capacity.” Mr. MacCready is no longer a D&D executive.
D&D claims Tyler Proud, who co-funded and built the entity with his brother, ceased to be a director once it went public in July, 2020, because he was “a combative and disruptive force” on the board, affecting its ability to function and fulfill its mandate. Its application alleges Tyler Proud has since sought “to improperly control D&D” and accuses him of working in a co-ordinated fashion with other dissidents to overhaul the board.
Tyler Proud stated in a sworn affidavit he pushed D&D to no avail for more than a year to improve its performance, fix its strategy, slow its pace of acquisitions and reduce debt. He said he has also pushed for the board to improve its “weak oversight over management” although he didn’t name his brother.
Each side had accused the other of using intimidation tactics. None of the claims have been proven in court.
“Look, it’s a tough one,” chief executive Matthew Proud said in an interview. “At the end of the day he’s my brother. I really want to resolve this and I think he wants the same thing.” He declined to comment on specific allegations in D&D’s legal action. Tyler Proud did not respond to an interview request.
At issue is an attempt by Tyler Proud to replace his nominee to the board, Edward Prittie, a director since the initial public offering, with hedge fund manager Eric Shahinian, at a coming shareholder meeting. The meeting has been postponed from its original date of Aug. 20 because of the litigation, which is scheduled to be heard later that month. The court has also restricted D&D from taking defensive measures such as issuing stock or entering into transactions that could affect the meeting’s outcome.
Under an investor rights agreement between the brothers’ personal investment holding companies and D&D, OneMove is entitled to nominate a director – not Tyler Proud – at shareholder meetings as long as it owns 5 per cent of the stock. OneMove, which has an 8.4-per-cent stake, does not have the unilateral right to remove its nominee from the board.
D&D agreed to put forward Mr. Shahinian’s name as a nominee to shareholders. But it refused to include a proposal by OneMove to also vote Mr. Prittie off, calling it invalid and related to “a personal grievance.” OneMove disagreed the move is personal, accused D&D of disenfranchising it and sued this month.
The Aug. 20 meeting was prompted by a challenge from another dissident. In March, D&D revealed New York activist hedge fund Engine Capital LP, which owns 6.6 per cent of the stock, had requisitioned a meeting for investors to vote on removing three other directors – Brian Derksen, current chair Colleen Moorehead and Leslie O’Donoghue – and replace them with three of its own nominees. Ms. O’Donoghue resigned this month.
Engine accused D&D of chronic underperformance and missteps, including overpaying for acquisitions, issuing stock at lower prices than it had previously paid to buy back stock and mismanaging a refinancing. D&D has pushed back, saying Engine doesn’t understand its business, and threatened to sue. D&D has received notice from a second activist, Ireland’s Blacksheep Fund Management, that it will nominate its chief investment officer Alexis Fortune to join its board.
In his affidavit, Tyler Proud, a Bahamas resident, said he had similar concerns about D&D and had lost confidence in Mr. Prittie – a friend who owns a neighbouring cottage – to drive change at the board. He delivered that message to Mr. Prittie several times last fall and winter, including in person while staying as the director’s guest in Switzerland for a ski trip in February, repeatedly pressing him to resign. Mr. Prittie refused, and in early March, D&D’s litigation lawyer accused OneMove of making threats and engaging in conduct contrary to its investor agreement obligations.
If the court rules in favour of D&D, that would keep Mr. Prittie in place, and five nominees nominated by dissidents would contest three board spots, leaving at least four incumbents in control (assuming D&D appoints a friendly replacement for Ms. O’Donoghue beforehand).
But a ruling in favour of OneMove would be a blow to incumbent directors including Matthew Proud. It would put Mr. Prittie’s directorship in play and if shareholders vote him off, up to four dissident-backed outsiders could join the board, upending the power balance.
D&D has created a lot of drama in its brief life as a public company. Its penchant for buying legal software companies with dominant competitive positions and then sharply hiking prices has outraged many clients and prompted complaints to the Competition Bureau and an attempted class-action lawsuit. An attempted multibillion-dollar takeover of an Australian company failed, and Britain’s competition regulator forced it to divest another acquisition. In spring, 2021, Matt Proud tried to lead a management buyout, abandoning the effort as the board granted him options valued at $99-million. Shareholders approved that pay package in late 2021 but voted down a resolution to grant options to the company’s directors.
More recently, investors have been troubled by D&D’s high debt. D&D has taken steps to lighten its financial load by cutting capital and operating costs, launching a strategic review of non-core assets and, in April, completed a debt refinancing that cut annual interest costs by $20-million. D&D has shed 100 of 1,300 jobs in the past seven weeks. Chief revenue officer Aaron Eichenlaub and chief product officer David Nash are among recent exits.
But its stock has languished. At its peak in 2021, D&D shares traded above $50 and it had a market capitalization of $3.5-billion-plus. Its stock closed Thursday at $13.03, leaving D&D valued at $880-million. On Friday, D&D released preliminary fourth quarter data including slightly better-than-expected revenue of $120-million, up 15 per cent year over year.