Dorel shares climb after company reveals plan to go private

David Paddon
·4 min read

TORONTO — Dorel Industries Inc. stock gained nearly five per cent Monday after the company announced a going-private deal with a group led by Cerberus Capital Management and the family that controls the consumer products company.

The preliminary offer -- which values the maker of car seats, strollers, bicycles and home furniture at approximately $470 million -- is subject to further negotiation between Dorel's independent directors and the family that controls Dorel through multiple-voting shares.

Dorel's subordinate voting shares had fallen nearly 10 per cent on Friday after hitting a 52-week high of $15.93 earlier in the week. The stock gained 66 cent Monday to close at $15.05, which was above the going-private price.

Under the proposed deal, announced before markets opened Monday, the buying group would pay $14.50 per share for the shares.

"Dorel has granted the buyer group exclusivity through Nov 10, 2020, to complete negotiations and enter into a definitive transaction agreement between Dorel and the buyer group," the company said in its statement.

A Dorel media representative said it had no further comment Monday but more details may be discussed during Dorel's third-quarter report on Friday.

Based in Montreal, Dorel makes a variety of consumer goods such as Cosco and Safety 1st child car seats, Cannondale and Schwinn bicycles, and home furniture under brands such as Dorel Living and DHP.

Karl Moore, an associate professor at McGill University's business school, said companies sometimes go private if they anticipate a difficult period ahead.

Moore added that families with a controlling stake in a public company may want to prepare for one generation to hand off management of the company to either younger family members or outside professionals.

"Part of going private like this, and I've talked to a bunch of companies that have done it, is you don't have to worry about quarterly results, you don't have to worry about defending what you're doing for longer-term strategy," Moore said.

Dorel's statement on Monday said the family shareholders informed its board of directors last December that they would look for a partner to take the company private, a move that requires the purchase of publicly traded shares.

The family shareholders said on Sept. 4 that they had chosen to work with New York-based Cerberus Capital Management LP, which manages about US$48 billion in assets.

Dorel said the going-private offer of $14.50 is 32 per cent above the closing price for Dorel B shares on Sept. 4, when the family said Cerberus would be its partner.

The company's shares have been rising since the class B subordinate shares hit an intraday low of $1.25 earlier this year.

The Schwartz family, which has held senior management positions at Dorel for decades, holds 19.18 per cent of Dorel’s outstanding shares on an economic basis and 60.17 per cent on a voting basis.

Martin Schwartz, who has been Dorel's chief executive since 1992, said in a quarterly call in August that two of its three divisions had rebounded well from a COVID-related dive in the first quarter ended March 31.

"Bike factories in Asia closed for four to six weeks during the first quarter, initially severely reducing supply. Then as the factories were ramping back up, demand for bikes took off to an extent never seen before," Schwartz said.

As a result, Dorel Sports, which includes the bicycle business, posted a record profit in the second quarter.

Dorel Home also did well in the quarter, Schwartz said, amid strong sales of desks and entertainment units and other furnishings.

The juvenile division, which includes car seats and strollers, was slower to rebound due to store closures and insufficient inventory of items such as thermometers.

Schwartz also warned on the Aug. 11 conference call that it was difficult to measure the potential impact of a second wave of the coronavirus.

Besides Martin Schwartz, who has been involved with Dorel as an investor since the 1980s, the family shareholders include chief financial officer Jeffrey Schwartz, Alan Schwartz, the company's executive vice-president operations, and Jeff Segel, executive vice-president sales and marketing.

Martin, Alan and Jeff co-founded Ridgewood Industries Ltd. in 1969 and merged it with Dorel Co. Ltd. in 1987 in an initial public offering.

This report by The Canadian Press was first published Nov. 2, 2020.

Companies in this story: (TSX:DII.B, TSX:DII.A)

David Paddon, The Canadian Press