SYDNEY, Australia and MONTREAL, June 07, 2018 (GLOBE NEWSWIRE) -- TDM Asset Management (TDM), which holds 12.2% of DAVIDsTEA Inc. (Nasdaq:DTEA), today sent the following letter to each of the dissident director nominees standing for election at the DAVIDsTEA Annual General Meeting on June 14, 2018 in Montreal, QC.

The full text of the letter is as follows:


William Cleman
Pat De Marco
Dr. Ludwig Max Fischer
Dr. Peter Robinson
Roland Walton

Your role on the dissident slate for the board of DavidsTea

Dear Sirs,

  1. Background

As you are aware, TDM Asset Management ("TDM"), holds a 12.2% interest in DavidsTea ("DavidsTea").

TDM has a long and successful track record, delivering our investors returns of more than 25% per annum for more than 12 years. We have grown our original investors’ funds by more than 17x by partnering with some of the worlds’ most successful growth businesses. A number of these investments have been in highly successful consumer businesses.

We have deep experience successfully investing alongside dozens of founders and have always had constructive, trusting and productive relationships with our founder partners. We are extremely proud of the feedback we continue to receive from CEO’s, Chairman and other stakeholders. We would be pleased to put you in touch with any of these referees should you wish to contact them.

Unfortunately, our experience with the Co-Founder of DavidsTea, Mr. Segal, has been the first time in our history we have been unable to agree a fair, reasonable and productive way of working with a founder.

This situation is particularly frustrating as all shareholders want the same outcome, which is to see the long-term performance of DavidsTea improved.

The disagreement comes down to one thing – Mr. Segal wants to gain unilateral control of the Board and operations of DavidsTea, including installing himself as Executive Chairman. TDM, the board of DavidsTea and the other major shareholders strongly oppose this.

  1. Leading proxy advisors have raised serious concerns regarding Mr. Segal’s actions

Two of the world’s leading proxy advisers have recently released opinions on the DavidsTea proxy contest. They do not support Mr. Segal’s actions.

A summary of these opinions is contained in the DavidsTea press releases found at

Their commentary included the following statements:

"We expect Mr. Segal has played a meaningful role in shaping, if not dictating, the composition of the Company’s board and senior leadership as well as its strategic direction. Notably, from the Company’s IPO through at least June 2017, four members of the board served as representatives of the Dissident or were affiliated with the Dissident…. Given his outsize influence on the board, we find it disingenuous for Mr. Segal to blame the remainder of the board for the Company’s poor performance during his tenure." Glass Lewis (extract from DavidsTea press release 1 June 2018).

“Overall, dissident control of the board is not warranted, among other things, due to lack of detailed dissident plan (e.g., actionable proposals to initiate substantial progress and organizational improvements)…” ISS (extract from DavidsTea press release 4 June 2018).

The views of these independent proxy advisors closely align with the views of both DavidsTea and of the three largest institutional shareholders in DavidsTea.

  1. Fair compromise

TDM's view, along with the views of other key institutional shareholders together representing approximately 37% of DavidsTea’s shares outstanding, are set out in a letter to the Board of DavidsTea dated 28 March 2018 (See attachment).

We have always been willing to support a balanced board where Mr Segal has proportional representation but not absolute control. Naturally, an independent Chairman should lead such board. We believe Mr. Segal should be entitled to a position on the Board but not to control the Board.

Regrettably, Mr. Segal remains unwilling to accept this reasonable compromise. His efforts to impose on DavidsTea a situation at odds with fundamental principles of corporate governance have caused DavidsTea to endure a costly proxy battle.

Fundamentally, it appears Mr. Segal wishes to behave like he is the sole owner of DavidsTea.

Such is the extremity of this situation that we are aware of at least one shareholder who has built a credible legal case against Mr. Segal based on his past actions. We have spent considerable time and resources reviewing the shareholder’s claims and believe they are valid.

  1. Your role in what happens next

If you become a Director of DavidsTea, you may soon be in a position where you are requested by Mr Segal to support actions which multiple parties, including TDM, believe will damage the Company. One such action is Mr. Segal being allowed to exercise leadership over the operations of the business, even on an “interim” basis, however there are numerous others.

We assume that you will take your fiduciary duty to the company extremely seriously.

It is possible that you have conducted your own thorough due diligence prior to consenting to be on Mr. Segal’s slate in March 2018. If not, I strongly encourage you to complete the work that any potential director of a public company in bound to do. This includes making basic enquiries of past and present employees and directors of DavidsTea to understand the history and nature of Mr. Segal’s involvement in the business. If, having made such enquiries, you are still inclined to support Mr. Segal’s actions, we want to remind you of some of the ways in which this may conflict with your basic fiduciary duty to the company:

  • Agreeing to appoint Mr. Segal as Chairman or Interim CEO

    Shareholders vote for Directors, however the Board votes to appoint the Chairman. Should you vote for Mr. Segal to become Chairman, you must have a reasonable basis for believing this is in the best interests of the Company. Any director, having conducted appropriate due diligence, is likely to conclude that Mr. Segal has severe limitations as a leader of a board or an executive team. This opinion is corroborated by several past and present employees of DavidsTea.

    Similarly, in the event the current CEO, Joel Silver, is terminated by Mr. Segal prior to finding a qualified replacement, and you allow Mr. Segal to insert himself as acting CEO, you are effectively and proactively concluding that Mr. Segal will be a more capable CEO than Mr. Silver. Once again, if you make due enquiry of credible sources we believe it will be difficult to reach that conclusion.

    The following are some observations from TDM based on a combination of TDM's direct experience with Mr. Segal, as well as numerous conversations with past and current stakeholders at DavidsTea:
  • Mr. Segal’s inability to build and sustain effective teams

    Effective leaders typically have a track record of inspiring high performing people to follow them. They build strong two-way relationships which are maintained for the long term. Unfortunately, Mr. Segal has a track record of quite the opposite. In the case of DavidsTea, there is a long list of parties with whom Mr. Segal has either had relationship difficulties or who have reached the conclusion Mr. Segal's leadership style is problematic.

    Since 2014, the Company has had eight director resignations, three CEOs and one interim CEO, and two COOs and has lost many other senior executives, including the Company's Co-Founder and Brand Ambassador, David Segal; the Chief Financial Officer; the Chief Human Resources Officer; the General Counsel; the Vice President Real Estate; the National Director of Retail and the Chief Marketing and Merchandising Officer. I have spoken with these individuals and encourage you to do the same as part of your diligence process.

    Mr. Segal has effectively fallen out with the current Board of Directors and CEO. Mr. Segal has known the current Chairman of DavidsTea, Mr. Tousson, for more than 40 years. We understand that, since the date on which Mr. Tousson voted against Mr. Segal in the best interests of the Company and its shareholders, Mr. Segal cut off all communication with Mr. Tousson and refused to speak to resolve their differences.

    In addition, the only three remaining significant institutional shareholders in DavidsTea - Porchlight, TDM Asset Management and Edgepoint, all well regarded firms, have each concluded the same thing - that Mr. Segal does not have the capability to effectively lead DavidsTea. Each of these shareholders is ostensibly aligned with Mr. Segal in terms of their ownership in the business and desire for a healthy and successful business. However, they can plainly see that Mr. Segal does not have the necessary skills and attributes to lead DavidsTea through a turnaround.

    We understand that Lorenzo Salvaggio, COO of Mr. Segal’s investment vehicle Rainy Day Investments (“RDI”) and, until March 2018, a director of DavidsTea, has taken sudden and extended leave from RDI and has withdrawn from the RDI board slate, in circumstances which remain unexplained by Mr. Segal.

    Behind most successful companies are aligned, motivated and inspired employees and leaders. It appears Mr. Segal does not have the capability to create this type of environment within an organisation.
  • Mr. Segal’s avoidance of process, structure and good governance 

    Leaders of successful businesses create an environment where the people accountable for delivering results can operate effectively. In contrast, we have discovered that Mr. Segal:

       - does not seem to respect the role of the CEO as leader of the executive team, and instead directly influences operational decisions via direct contact with employees, suppliers and other stakeholders without the CEO’s consent or advance knowledge;

       - does not seem to appreciate the fundamentally different roles of a Board and the executive management team. Mr. Segal appears not to acknowledge the Board's role to recruit, motivate and evaluate the CEO but not micro manage the CEO;

       - is incapable or unwilling to document his plans for the company in detail, including justification for his strongly held views on management, strategy and day to day execution;

       - frustrates the effective functioning of Board and Board Committee meetings, by attempting to dictate the agenda; and

       - is extremely demanding of time, especially that of the Chairman, with no commensurate output, agenda, or structure.
  • Mr. Segal’s erratic and unpredictable behavior  

    Good leaders set clear direction, communicate transparently to their stakeholders and don’t change their views suddenly without clear explanation. Mr. Segal has a history with DavidsTea of erratic and unpredictable behaviour. Most recently, this has been demonstrated by his public announcement that he wished to acquire 100% of DavidsTea, followed promptly by the announcement that he did not want to buy the business.

    This behaviour has also been reflected in his opinions on the executive leadership team at DavidsTea, which have been known to change dramatically within short time intervals.
  • Mr. Segal’s apparent unwillingness to be held accountable for business decisions in which he was integrally involved  

    An effective leader acknowledges the role they play in key strategic and other decisions and is willing to be held accountable for those decisions. Mr. Segal has been involved in a range of decision that he is now blaming on the Board of DavidsTea. Most notably, he has distanced himself from the role he has played in hiring past CEO's as well as playing a key role in forming the Board which he now claims is ineffective.  Mr. Segal is presenting himself as the solution to problems of his own making, and this reinforces a deficit of leadership. Note that Mr. Segal was directly involved in sub committees responsible for, among other things:

       1) real estate decisions, many of which have been poor and a key contributor to company underperformance;

       2) CEO recruitment, including membership of the committee which selected current CEO Joel Silver with Mr. Segal's full support; and

       3) interviewing and selection of preferred investment bank, William Blair, to conduct a strategic review of DavidsTea – a processes he is now rejects.
  • Mr. Segal’s involvement of family members in business  

    Mr. Segal has a history of including family members in his two most significant business interests - Le Chateau and DavidsTea. In the case of DavidsTea, he has involved his daughter Sarah Segal twice. The first occasion ended with Ms. Segal taking legal action against DavidsTea, resulting in an expensive legal settlement for the company. Ms. Segal was recently re-hired at Mr. Segal’s urging, but is now on paid leave.

    We fear that Mr. Segal is setting up DavidsTea for Ms. Segal to eventually assume the CEO role, despite Ms. Segal’s lack of appropriate qualifications.
  • Mr. Segal’s apparent inability to distinguish between retail experience and leadership aptitude

    There is no doubt Mr. Segal has spent a long time in the retail industry. However, most of this experience was garnered as a leader in various capacities at Le Chateau, and as such he has presided over a 35-year decline in shareholder value.

    At the time of the IPO in 1983 the share price of Le Chateau was $11.25 and is now less than $0.22. The market capitalisation of Le Chateau has fallen precipitously and is now only C$7 million, with total debt of more than C$60m as at 27 January 2018.
  • "Rubber stamping" Mr. Segal's operational and strategic decisions

    Mr. Segal clearly wishes to take control of DavidsTea. Any person acting as director on a board under these circumstances runs the risk of being put into a position where they are "rubber stamping" key decisions to support Mr. Segal’s own agenda. TDM intends to take a vigilant interest in ensuring directors can show a reasonable basis for supporting any of Mr. Segal’s proposed actions. 
  1. TDM's direct experience with Mr. Segal

In the last 9 months, through working closely with the Board and management of DavidsTea, TDM has gained first-hand experience of Mr. Segal's modus operandi.

When TDM expressed interest in helping to improve the relationship between Mr. Segal and executive management, we were cautioned that many had tried and failed in this exercise over the years. Sadly, TDM’s best efforts also failed. 

Mr. Segal's erratic behaviour is clearly demonstrated by the series of events that have unfolded recently:

  • Late last year, TDM became aware that Mr. Segal was unhappy with DavidsTea management, but it was unclear what was expected of the team and how they would be objectively assessed.
  • In November 2017, TDM spent many hours with Mr. Segal in Montreal, discussing, and documenting a plan of action to improve Mr. Segal’s working relationship with management. This included clarifying Mr. Segal’s expectations of management how he could reasonably assess performance against agreed objectives.
  • Within a few weeks of agreeing to this detailed plan of action, Mr. Segal rejected the plan and insisted that management be changed immediately. Mr. Segal was advocating the replacement of management with no credible succession plan in place.
  • The Board subsequently decided to appoint an advisor (William Blair) to run a strategic review for the company. Mr. Segal agreed to being part of the selection process and was involved in the interviews. He was involved in the choice of William Blair as the preferred advisor. However, following several months of engaging with potential advisors, Mr. Segal changed his mind and decided he would not support the appointment of an advisor. He announced to the board he would instead like to bid for the company. Then, without warning, he announced that he had changed his mind once again and was not interested in bidding for the company but instead would seek to change the board.

    The result of the above has been the creation of an incomprehensibly difficult environment at DavidsTea in which executives and non-executive Directors are expected to deliver results. It is little wonder that several DavidsTea employees have expressed that Mr. Segal's approach and style have contributed to the significant turnover in both the executive team and at the board in recent years.
  1. Conclusion

We are not disputing that change is required at DavidsTea. The board could benefit from fresh input and no doubt the company needs to be turned around.

However, the combination of Mr. Segal's insistence on control at the effective exclusion of other stakeholders, as well as his basic leadership deficiencies, creates an environment where DavidsTea will not be able to reach its potential.  Specifically, DavidsTea's ability to attract and retain the high calibre executive talent necessary to restore the performance of the business to where it needs to be will be severely hampered.

We urge you to consider the role you are playing in enabling Mr. Segal to pursue this adverse outcome for DavidsTea.

Our only hope is that Mr. Segal will decide to re-engage in discussions with the company and shareholders to re-build a balanced board where several stakeholders, rather than one, can work together on a solution. 

As a final note, I understand that Porchlight, who own over 12% of DavidsTea, recently sent a letter to Mr. Segal expressing their concerns in some detail. If you have not already been provided with a copy of this letter, I suggest you request one from Mr. Segal.

Should you wish to discuss any of the contents of this letter, I would welcome your call.

Yours Sincerely,

Benjamin Gisz

TDM Asset Management Pty Ltd

For more information:

Benjamin Gisz
TDM Asset Management
+61 2 8999 8816

David Ryan
(416) 455-1927