Performance Sports Group Ltd. will be in the spotlight Tuesday after the stock had an unusual spike in the final hour of trading before the long weekend.
After seeing little activity for most of the day, PSG shares began to surge just after 3:10 p.m. on Friday. The stock jumped nearly 30 per cent in less than an hour, closing at $4.59 on the Toronto Stock Exchange.
It was the same story in the United States, with the shares rallying 30.4 per cent in the final hour to close at $3.56 (U.S.).
The price jump happened on heavy volume. More than 696,000 shares of PSG in Canada and three million in the United States changed hands between 3 p.m. and 4 p.m. From the market open at 9:30 a.m. until 3 p.m., just 202,000 shares of the company in Canada and 950,000 shares in the United States were traded, according to Bloomberg data.
Performance Sports, which makes Bauer hockey equipment and Easton baseball gear, has had a difficult year. It has delayed the filing of its financial statements, is under investigation by the U.S. Securities and Exchange Commission and is now the subject of inquiries from securities regulators in Canada, too. The TSX-listed shares have fallen 66 per cent this year.
It’s unclear what caused Friday’s buying frenzy. It happened shortly before PSG’s largest shareholder, a firm controlled by the wealthy Desmarais family of Montreal, issued a statement saying that it’s evaluating the company’s financial position and may consider proposals that involve a refinancing of PSG’s debt or even a sale of the company or some of its assets.
The Desmarais investment firm, Sagard Capital Partners, owns 16.9 per cent of PSG. At 4:30 p.m. on Friday, Sagard announced that it had terminated a shareholder agreement that would have given the firm a seat on the board. Initially, former Sagard president Dan Friedberg sat on the board and after he resigned, the seat was to be occupied by Paul Desmarais III. In the same news release, it said that it “plans to discuss ideas … with potential sources of financing and co-investors” who might play a role in refinancing or restructuring the company.
Sagard, a subsidiary of Power Corp. of Canada, said it might make proposals to Performance Sports “concerning the capitalization or ownership structure … including a sale of [PSG] as a whole or in parts, the structure of [its] board of directors (including board composition) or operations of the issuer.”
Spokespeople for PSG and Power Corp. did not respond to requests for comment over the weekend.
Among the problems faced by Exeter, N.H.-based PSG is its financial position. The sporting-goods company is sitting on about $440-million (U.S.) in debt, some of it accumulated during an acquisition spree that added baseball and lacrosse equipment to its business. It generated just $12.6-million in free cash flow during the three months ended Feb. 29, which is the last quarter it reported results.
In March, the company dramatically revised its outlook for the fiscal year that ended May 31. Previously it had expected to earn 66 cents to 69 cents a share on an adjusted basis; the revised guidance was for adjusted EPS of 12 to 14 cents a share.
Then, in August, PSG postponed filing its annual earnings results for the year ended May 31 and delayed its annual shareholder meeting, which had been scheduled for Oct. 5. It also said that its audit committee has initiated an investigation of its accounting. A committee of its independent directors has retained Centerview Partners LLC to advise them on the company’s strategic alternatives.
PSG is fending off a class-action lawsuit in the United States that accuses the company and several current and former executives of “channel stuffing” – pulling future sales into the current period to give an impression of strong revenue. None of these allegations has been proven in court.Report Typo/Error
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