Dorel shares surge with deal to sell sports segment for US$810 million

MONTREAL — Dorel Industries Inc. shares more than doubled Tuesday after it announced deal to sell its Dorel Sports bicycle segment that makes brands such as Cannondale, Mongoose and Schwinn to Dutch mobility group Pon Holdings B.V. for US$810 million.

The Montreal-based company's B shares closed up $10.67 or 102.4 per cent to $21.09 by the end of trading on the Toronto Stock Exchange Tuesday.

Dorel says it will use the proceeds of the sale to reduce debt, return capital to shareholders and for general corporate purposes.

The transaction will consist of the sale of 100 per cent of the shares of Dorel's wholly owned subsidiary companies comprising Dorel Sports which it has owned since 2004 as well as certain related assets.

The company’s move comes after a “deep” strategic review that began earlier this year. 

"The divestiture of Dorel Sports represents a unique opportunity to unlock value by capitalizing on strong demand for scaled assets in the bicycle segment,” stated Dorel CEO Martin Schwartz in a news release.

TD Securities analyst Derek Lessard said he believes the price obtained represents the "full value" of Dorel Sports. He changed his recommendation from "hold" to "buy" and his target price from $15 to $46. 

"We believe there remains potential for improved valuation as the pressures on the supply chain ease and the company shows greater earnings stability," said Lessard. 

Dorel said the transaction would allow it to focus on growing the businesses of its two remaining divisions, furniture and juvenile products. These activities face some challenges related to inflation and pressures on supply chains. 

Management clarified that the remaining two divisions are not for sale.

"We see opportunities to drive top-line growth as well as initiatives to reduce our overall cost structure to improve our cash-flow generation at both segments," said Schwartz. 

The sale has been approved by Dorel's board of directors and is expected to close by the end of the first quarter of 2022. 

This report by The Canadian Press was first published Oct. 12, 2021.

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

The Canadian Press


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