Dye & Durham Ltd. DND-T stock crashed to a low Monday after ex-chief executive officer Matt Proud withdrew his offer to buy the real estate software vendor, and it hit back with a lawsuit to enforce a co-operation agreement with his personal investment holding company.
Mr. Proud’s holding company, Plantro Ltd., said in a release Monday it had withdrawn its $10.25-a-share offer consisting of cash and stock in a new company that would hold part of D&D’s business. Plantro added it was evaluating its D&D holdings “and may seek to reduce or exit” its stake.
The retreat comes after D&D enacted a poison pill to prevent a “creeping” takeover by Plantro, and following downgrades of D&D’s credit ratings by S&P Global Ratings and Moody’s Ratings.
Both agencies flagged concerns about Toronto-based D&D’s continuing leadership and governance issues following consecutive shareholder activist campaigns, which Moody’s said had distracted the highly-indebted company, driven up its costs and limited its ability to improve its performance amid a subdued Canadian residential housing market.
S&P said that even when D&D completes a recently-announced sale of a British business and repays debt with the proceeds, its ability to deleverage will be uncertain.
Dye & Durham enacts poison pill to ward off ‘creeping’ takeover bid from former CEO Matt Proud
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Plantro said it was pulling its bid for several reasons, including “material deterioration” in D&D’s earnings, a lack of engagement by the board on its offer, concerns about potential debt default and the sale of the British unit. It accused D&D of using Plantro’s proposal “to justify an unnecessary poison pill” and refuted that it was acting jointly with other investors.
Both Mr. Proud’s brother, former D&D chairman Tyler Proud, and ex-director Ronnie Wahi recently called for changes to the D&D board around the same time as they offered support for Plantro’s pursuit.
Plantro also cited the widening gap between the share price and its offer as a reason for its pulled bid, saying it was “now substantially off-market.”
D&D stock closed down 16.8 per cent Monday at $5.50 a share after hitting an all-time low of $5.22 earlier in the day. The stock is 75 per cent off its 52-week high and well below the $7.50 July, 2020, initial public offering issue price.
Matt Proud left last December in the latter stages of a successful campaign led by Engine Capital LP to overhaul the board – only to then launch his own activist campaign. He signed a standstill agreement after D&D in July agreed to appoint a nominee of Mr. Proud’s to the board and launch a strategic review.
D&D said in a release Monday morning it was suing Plantro to enforce the terms of that agreement after Mr. Proud’s company asserted the deal had been repudiated. D&D is seeking a declaration that the agreement remains fully valid and in force, and an injunction prohibiting Plantro and Mr. Proud of breaching its terms. D&D said its strategic committee “has been actively evaluating strategic alternatives” and has until Dec. 29, according to the agreement, to start a process seeking written bids.
The company has hired CIBC Capital Markets and Osler, Hoskin & Harcourt LLP as advisers on the process.
D&D’s continuing turmoil follows years of concerns by large shareholders about the acquisitive company’s rising debt, its management and governance, culminating in their support for Engine’s campaign.
The ensuing overhaul has not delivered satisfying results. The campaign to hire a new CEO dragged on as D&D’s results disappointed and it rehired and then quickly fired a former chief financial officer. D&D also had to seek permission from its lenders to delay filing its annual financial statements, which are still overdue.