Dye & Durham (TSX:DND) stock has slipped 25.6% since December 13 to $16.36 and is hovering near its resistance level. The stock has maintained a level of $15-$16 since the fourth quarter of 2024 as it has been facing pressure from activist shareholder Engine Capital for the appointment of its members to the board. This boardroom drama took a twist and turned into a full-blown fight with several name-calling.
Where it all began
As an owner of a 7.1% stake in Dye & Durham, Engine Capital has been trying to get its directors on the board of DND. Engine Capital has been upset with the mismanagement of the board and its chief executive officer (CEO), stating the growing aggression of customers, the competition regulator’s rejection of two acquisitions, and the exit of most of the senior management.
Moreover, Engine Capital was vocal about using the money from the initial public offering (IPO) and raising $1 billion in debt for aggressive acquisitions. These comments did not bother Dye & Durham and its share price until November 2024, when the software company finally accepted Engine Capital’s request to nominate its directors to the board.
From here began the boardroom drama. On November 26, 2024, Dye & Durham CEO Matthew Proud stepped down and announced a succession plan. The Annual General Meeting (AGM) was set for December 17, where shareholders will vote on the nomination of new directors.
Why did Dye & Durham stock fall in December 2024?
Between December 4 and 17, 2024, the company’s management released several press releases and a presentation stating Engine’s nominated directors could disrupt DND’s Value Creation Plan. The plan has shifted from growing through acquisition to generating multiple revenue streams such as banks, legal practices, and any other business that will benefit from Dye & Durham’s proprietary database that helps in due diligence of real estate transactions.
On the day of the AGM, the DND board of directors resigned, and Engine Capital’s nominees were appointed to the board. Hence, the stock fell 25% from December 17. The new board has formed a CEO search committee and appointed Hans T. Gieskes as chair of the board and interim CEO.
The company’s Unity platform garners a lot of attention among legal professionals. However, the uncertainty around the management and the plans of the new board to derive shareholder value keeps the stock risky.
Should you buy the dip or run for cover?
DND has been making losses because of its high debt. I changed my stance on Dye & Durham stock and turned bearish in December. The company reviewed the option of merging, divestiture of assets, or other strategic transactions like management buyouts twice in the last four years to unlock shareholder value.
The previous management preferred organic growth. What the new board and management have in mind remains to be seen. Can acquisition unlock shareholder value? The blurry future makes it a stock you might want to stay away from, even in the current dip.
Instead, you could consider buying a relatively stable stock with strong management, manageable debt on the balance sheet, and profits. The information management software OpenText has all these qualities, and the stock is trading 30% below its last peak in January 2024. It is incorporating artificial intelligence to enhance its offerings.
