Dye & Durham Ltd. DND-T is adopting a poison pill to prevent a “creeping” takeover bid from former CEO Matt Proud, who offered to buy the embattled legal software company for $10.25 a share in a complex deal backed by his brother and former chairman Tyler Proud and former board member Ronnie Wahi.
A year ago the Proud brothers were on opposite sides of a bitter battle that resulted in Matt Proud’s departure from D&D and the replacement of the entire board with a slate hand-picked by activist investor Engine Capital Management LP last December.
Three months ago, Matt Proud agreed to a standstill deal with the company, ending his own activist campaign, after the board agreed to appoint a director of his choosing and put itself up for sale by Dec. 29.
After submitting several expressions of interest to buy D&D earlier this year, his holding company, Plantro Ltd., sent the board a non-binding conditional offer on Sept. 24. The proposed deal would pay $4.75 in cash plus one share in an as-yet-unformed public company that would house D&D’s financial services company and carry an ascribed value of $5.50 a share. The company revealed details of the bid Wednesday in a news release.
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The Plantro letter noted the offer was 26 per cent above the company’s closing stock price and offered the company a “robust and meaningful ‘go-shop’ period,” during which it could pursue higher bids. Matt Proud said in an interview that David Danziger, his appointee to the board and chair of the strategic review committee, encouraged him to seek support from other shareholders for his proposal.
Two agreed: Tyler Proud and Mr. Wahi. Both agreed to roll their holdings into the proposed transaction, and together the three entities hold 22 per cent-plus of D&D shares.
Tyler Proud was one of several shareholders who had pushed for leadership and governance changes at D&D in recent years and had backed the successful campaign led by New York hedge fund Engine Capital last year.
But the ensuing activist overhaul has not delivered satisfying results. The Engine-led board promised to pause deal-making, reduce debt, improve culture and discipline, build customer loyalty and shareholder value and hire a top-notch chief executive.
But the campaign to hire a new CEO dragged on as D&D appointed two interim leaders from its board. Its results disappointed, and the stock slumped.
The company rehired former chief financial officer Avjit Kamboj in June, then fired him less than two months later without cause after it hired George Tsivin as CEO. Mr. Tsivin and D&D in turn have been sued by his former employer, Relx PLC, alleging he violated his notice and non-compete obligations by accepting the job.
D&D was also hit with whistle-blower complaints, but on Wednesday the company said an investigation had found no evidence of misconduct by company directors.
Also this week, the company, which had grown under Matt Proud’s watch by way of acquisitions and hiking prices, said it had agreed to sell a U.K. business called Credas Technologies for $146-million to competitor SmartSearch, after buying the business for $26-million two years ago.
On the same day Plantro submitted its bid, Tyler Proud’s private holding company, OneMove Capital, called for Engine founder Arnaud Ajdler to step down as chairman of D&D, accusing him of overseeing “nine months of accelerating decline.”
He also demanded an immediate update on D&D’s financial position after it said it wouldn’t be able to file its annual financial statements on time. That could have triggered a technical default on its senior debt, but its lenders subsequently gave the company a waiver.
In a news release Wednesday, the company noted that one week after receiving Plantro’s conditional bid, Mr. Wahi issued a news release seeking to reconstitute the board and calling for D&D’s sale. He said he understood D&D had received offers from qualified buyers at a significant premium but did not disclose his support for or intention to roll his shares into that proposed deal. The company said the Plantro offer was the only one its strategic committee had received.
Then, on Monday, OneMove stated in a release that it also understood the board had received an offer and had failed to engage with the bidder. That release also did not reveal whether OneMove supported Plantro’s transaction.
D&D said in its release that the board, after the unanimous recommendation of its strategic committee, had approved a limited shareholder rights plan so it can “pursue an orderly strategic review process that is fair to all shareholders” and prevent a creeping takeover bid that could negatively affect the process.
The plan prevents any shareholder or joint actors that collectively own 20 per cent or more of the shares from acquiring more shares other than pursuant to a permitted bid. It also prohibits them from entering into hard lock-up agreements.
It attaches rights to each outstanding share, giving holders other than the Prouds and Mr. Wahi the right to buy extra shares at a substantial discount to the market price. That dilutive action wouldn’t take place if shares trade hands under a permitted bid.
Both Proud brothers voiced their displeasure. “Rather than take steps to try and preserve value for shareholders, the board seems intent on entrenching itself,” Matt Proud said in a message to The Globe and Mail.
“For two weeks the company didn’t engage on a bona fide offer, and now, with a looming shareholder meeting, it has disclosed the proposal and adopted a poison pill.”
Tyler Proud said in a text that OneMove “is supportive of any offer, whether from Plantro or others, that gets Dye & Durham sold at a fair price. Instead of unloading high-growth assets and announcing ways to entrench themselves, why isn’t this board providing an update to shareholders on real progress being made on the strategic review they’ve had under way for more than 10 weeks?”