A 10-month battle over the future of Dye & Durham Ltd. DND-T ended anticlimactically on Tuesday, as a slate of dissident directors ascended to the board in an uncontested election.
The changeover, formalized at a 15 minute annual meeting, swept out Matt Proud, D&D’s embattled entrepreneur and largest shareholder who built the Toronto legal software company and agreed last month to step down as chief executive officer after the board paid him $10-million severance.
Mr. Proud had been a lightning rod of discontent as his leadership, and the directors that oversaw him, drew four attempts by shareholders over the past 14 months to make changes to the board. Proxy advisory services ISS and Glass Lewis had both recommended that shareholders withhold support for Mr. Proud’s continued directorship, blaming him for high management turnover, a poorly executed acquisition and integration strategy, and saying there would be lingering concerns about the board’s independence if he remained a director. D&D is also under investigation by the Competition Bureau for alleged trade restricting practices.
The meeting’s outcome was a foregone conclusion after the dissident leading the charge, New York hedge fund Engine Capital LP, said Friday that a majority of outstanding shares had already voted for its slate of six nominees to the seven-person board. After jumping by 11.4 per cent that day, the stock has retreated, though it was still trading higher Tuesday than before Engine revealed it had won the vote.
Canadian Imperial Bank of Commerce analyst Scott Fletcher said in a note that investor concerns around management and board oversight had “clearly been a major contributor” to the stock trading at a discount to peers. With the changeover, he predicted it would rise and increased his share price forecast to $30 from $22. Despite potential turbulence during the transition, “we remain optimistic about the company’s near- and longer-term prospects,” he wrote.
Hans Gieskes, who was named D&D’s chairman and interim CEO on Tuesday, thanked shareholders during the meeting “for the strong mandate for change” and commended the outgoing board for facilitating an orderly transition. Mr. Gieskes, one of the incoming directors, was formerly CEO of RELX PLC’s LexisNexis Group.
Hours ahead of the vote result, D&D had announced all incumbent directors had resigned and all but one of the company’s nominees withdrew, after a bitterly fought campaign. The remaining nominee, hedge fund manager Eric Shahinian, was the choice of ex-chairman Tyler Proud – the former CEO’s brother and another dissident investor – under a shareholder rights deal that permitted him one nominee.
Engine’s activist campaign started after the veteran activist investment firm, led by Arnaud Ajdler, purchased much of its eventual 7.1-per-cent stake in a bought deal in January. The sale, at $12.10 a share, came months after D&D had repurchased stock at much higher prices.
That dilutive offering came after more than a year of growing discontent among shareholders about the leadership and oversight of D&D, a highly acquisitive company that had run up its debt and seen its share price crash from heights reached in the year after it went public in July, 2020.
By fall 2022, the board was aware of shareholder unhappiness after it had awarded the CEO a rich pay package the previous year following his abandonment of a management buyout. Then-chairman Brian Derksen told fellow directors that shareholders had trust issues over perceptions of weak governance, senior management self-interest, limited communications and transparency and access to the CEO. Mr. Derksen himself felt the board had too many inexperienced and unengaged directors.
Shareholder concerns continued to grow. Long-term investors were “confounded, looking for clear direction and consistent action” and unclear about its plans to create value, Mr. Derksen wrote the board last fall. New investors were spooked by the debt and “credibility issues,” he added. Two directors who had approved the CEO’s rich pay package decided not to run at last December’s annual meeting after Tyler Proud and Mawer Investment Management threatened to withhold support.
Engine started buying the stock last December after concluding D&D possessed valuable assets but was mismanaged and suffered from a poor culture and employee discontent stemming from the CEO. On Feb. 13, Engine launched its campaign, initially proposing D&D appoint two directors of its choosing or request a special meting of shareholders for their support.
D&D’s leadership accused Engine of acting jointly with other shareholders, which the activist dismissed as baseless, and threatened legal action. Engine then called for shareholders to vote for three of its nominees at a special meeting. That was supposed to happen in August, but was postponed when Tyler Proud’s holding company tried to piggyback another proposal onto that meeting to have shareholders vote his prior nominee off the board and bring on Mr. Shahinian instead. That gambit, later rejected by an Ontario judge, delayed the Engine meeting. Engine then amped up its campaign, proposing a six-person slate for Tuesday’s AGM.
The biggest issue in the contested vote was leadership and oversight. Otherwise, the duelling visions outlined by Engine and D&D weren’t that different from one another. Engine promised to recruit a world-class CEO, shrink D&D’s debt before pursuing more deals and sell non-core assets.
Engine’s Mr. Ajdler, now D&D’s lead independent director, said in a statement Tuesday his firm was “humbled” by the support from other shareholders, adding: “We do not take this edict lightly and are committed to delivering on the promises we made” during its campaign.