BRP Inc.'s stock slid 5.4 per cent after announcing another share sale by the company’s principal owners, the third such offering in three years.
Shares of the maker of Sea-Doo watercraft and Ski-Doo snowmobiles closed down $3.42 at $60.30 in trading Wednesday on the Toronto Stock Exchange after news late Tuesday of the secondary share sale through a bought deal worth $305.9-million.
Under the deal, a syndicate of underwriters led by BMO Nesbitt Burns, Citigroup Global Markets Canada and RBC Dominion Securities agreed to buy five million subordinate voting shares of BRP at a price of $61.17, according to the maker of power sports equipment.
BRP’s two largest shareholders are each selling portions of their stakes in the transaction. The Bombardier family’s holding company, Beaudier Group, is selling 2.8 million shares. Bain Capital, a U.S.-based private equity firm, is selling a block of roughly 2.2 million shares.
The price at which BRP’s stock closed on Wednesday suggests investors aren’t clamouring to buy the new shares.
In such bought-deal transactions, underwriters buy the shares and attempt to resell them to third-party investors, preferably in a matter of hours. For assuming the risk, brokers are paid a flat commission. At the moment, BRP’s stock is trading below the new-issue price, meaning investors can buy shares for cheaper in the open market. Lead underwriter BMO could not be reached for comment on the status of the deal.
A number of secondary offerings have struggled to sell over the last year, across multiple sectors. In May, Shaw Communications Inc. announced a deal to sell its 38.6-per-cent stake in Corus Entertainment through a bought deal, but roughly two-thirds of the deal didn’t sell. To unload the shares, the deal had to be repriced, leading to a $24-million loss for the underwriting syndicate.
A secondary offering by Canada Goose Holdings Inc. also struggled to sell, leading to steep losses for the deal’s underwriters.
Beaudier and Bain have been trimming their positions in BRP over time, taking profit from a share price that has more than doubled since the company went public in 2013. Company records show this is the third secondary offering by BRP’s main shareholders since the fall of 2017, with two of those structured as bought deals and one as a marketed deal.
“If another secondary comes next year, which is likely, they’ve been doing them annually, that’s something that can sort of limit the upside to shares,” Morningstar analyst Jamie Katz said. “Investors don’t like secondaries because they’re usually offered at a lower price than the market.”
Beaudier currently holds about 26.1 million multiple voting shares of BRP and controls 45.7 per cent of the voting power attached to all the shares, which will be reduced to 43.9 per cent after the offer closes. Bain currently holds about 19.9 million multiple voting shares and controls 34.9 per cent of the voting power of all shares, which will fall to 33.6 per cent after the offer closes.
“From a trading standpoint, we view the [BRP] announcement as a slight negative for the share price although it should increase the stock’s liquidity,” Desjardins Securities analyst Benoit Poirier said in a note.
A BRP spokesperson said: “The stock price fluctuation is something that we have observed the last few times we announced a secondary offering. Since the banks are in charge of the selling process and we have no visibility on it, we are unable to comment further.”
Shares in Valcourt, Que.-based BRP have climbed 87 per cent since hitting a 52-week low of $32.27 in December, 2018, a rally sparked in part by its better-than-expected profit performance over the past several quarters. However, they had fallen 3 per cent so far this month before Tuesday’s share sale announcement.
Analysts say the company is taking market share from competitors with innovative products that are resonating with consumers, even as recession worries loom. The company is aiming to deliver annual revenue growth of 10 per cent a year, to $9.5-billion by fiscal 2025.
In its third-quarter earnings report last month, BRP raised the lower end of its financial guidance for the year. It now expects to grow earnings per share at least 19 per cent in fiscal 2020 compared with a year earlier.
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