Dye & Durham Ltd. DND-T has rejected a notice by activist shareholder Engine Capital LP to nominate an alternative slate of directors at D&D’s Dec. 17 annual meeting on technical grounds.
Goodmans LLP lawyer Jon Feldman wrote to the New York hedge fund last Friday on behalf of the Toronto legal software company, saying “we unfortunately cannot accept the notice in its current form.”
The letter states Engine’s notice “fails to provide adequate detail regarding the circumstances,” according to Ontario business law under which Engine became involved as a dissident, or enough detail on the “nature of its activities.”
Mr. Feldman also said Engine’s notice fails to share details about “other dissidents, including any members of the nominating shareholders’ ‘group.’” D&D and its board have maintained Engine is working with other dissidents to seize control of the company.
The letter gives Engine until 5 p.m. on Wednesday to resubmit its notice.
In a release Monday, Engine accused the board of trying to entrench itself and to disenfranchise investors by “raising baseless concerns regarding our director nomination notice” and seeking “additional superfluous information.”
It called D&D’s claim that Engine is acting with others “a false assertion that’s been obsessively peddled” by D&D chair Colleen Moorehead and chief executive officer Matt Proud. Engine said it will comply with the information requests, adding it “urges the board to immediately cease the gamesmanship” and warned if D&D seeks to invalidate its nomination, it will take legal action.
D&D spokesman Wojtek Dabrowski said in a statement “shareholders have the right to understand the nature and scope of Engine’s solicitation, and for reasonable disclosure about each of the nominees. The information requested is relatively standard in these circumstances,” and in accordance with the board’s fiduciary duties.
The letter follows two attempts by D&D to use a Competition Bureau investigation into the company for alleged trade-restricting practices to entrench management and directors in the face of Engine’s governance challenge, The Globe and Mail reported Friday. Another lawyer acting on D&D’s behalf twice wrote to the bureau this year asking the bureau to add language to a proposed Federal Court order compelling the company to turn over records that would keep management and directors in place until D&D complies. The bureau didn’t consent to either request.
Engine originally sought earlier this year to replace three of D&D’s seven directors with its own nominees at a special meeting, which was postponed thanks to a separate court challenge by another dissatisfied D&D shareholder, ex-chairman Tyler Proud, brother of the CEO. Last week Engine expanded its challenge, proposing to replace nearly the entire board with a six-person slate at D&D’s annual meeting and “rebuild a top-performing executive team,” which was seen as an explicit threat to oust Mr. Proud.
Engine’s five candidates other than its founder, Arnaud Ajdler, have senior-executive experience with public companies, including two from the legal information services space: Hans Gieskes, former CEO of RELX PLC’s LexisNexis Group; and Anthony Kinnear, former president of Thomson Reuters Corp.’s legal professionals’ unit.
The 11-year-old hedge fund, which owns 7.1 per cent of D&D’s stock, is a veteran of 34 activist campaigns, including two against Toronto Stock Exchange listed companies Parkland Corp. and RDM Corp., according to its notice. It began investing in D&D stock last December, picking up its biggest stake as part of a bought deal financing by the company in January.
It has been a tumultuous 12 months for D&D, which since last fall has faced three other governance challenges, refinanced its high debt, cut staff and launched a strategic review that could lead to the company’s sale. Other investors, including Tyler Proud, have expressed discontent over its debt, pace of acquisitions, board oversight over management and rich compensation to the CEO while its stock has remained at depressed levels.
News of the bureau’s investigation sent D&D stock tumbling last week, but it recovered partly after the CEO said D&D is co-operating with the probe and doesn’t think it has done anything wrong. Matt Proud speculated that if D&D is ultimately fined, the penalty would be $15-million or less.