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Dorel Industries CEO Martin Schwartz in Montreal on Sept. 16, 2013.The Globe and Mail

The controlling shareholders of Dorel Industries Inc. have made a non-binding proposal to take the bicycle and baby products maker private after several rocky years in which the Canadian company’s once high-flying shares tumbled to near penny-stock status.

Montreal-based Dorel said Monday it has reached an agreement in principle to be taken private by a group led by U.S. private equity giant Cerberus Capital Management and the Schwartz family, which controls the company through a special class of multiple-voting shares.

Cerberus frequently makes investments in distressed assets. It is perhaps best known in Canada for leading the US$7.4-billion purchase for an 80-per-cent stake in car maker Chrysler and financing arm Chrysler Financial in 2007. The company also bought Montreal-based telecom provider Teleglobe Inc. out of bankruptcy protection in 2003 and made a significant investment in Air Canada the year afterward.

Under the terms of the proposed transaction, which values Dorel at about $470-million, the buyers would pay $14.50 for each share the family does not already hold. The class B subordinate voting shares closed Monday at $15.05 on the Toronto Stock Exchange, suggesting a higher price might be needed to clinch the deal. The class A shares closed at $15.24.

Barely four years ago, Dorel enjoyed a share price near $40. The stock has crashed hard since then, however, as the company struggled with restructuring initiatives and slashed its dividend in half. It hit a low of $1.25 this past spring before clawing back to $14.39 at Friday’s close.

Dorel operates three separate business arms that are each very different. Its sports unit controls bike brands such as Cannondale and Schwinn, while its juvenile unit makes car seats, strollers, toys and other children’s products under brands including Maxi-Cosi and Quinny. The third division makes home furniture.

Dorel’s rebound this year is fuelled by a renewed appetite among consumers for its bikes and home furnishings through the coronavirus pandemic. The company in August reported adjusted earnings before interest and taxes of $43-million on revenue of $724-million, well above analysts' forecasts.

Dorel went public in 1987 after a merger between children’s gear manufacturer Dorel Co. and furniture maker Ridgewood Industries. Ridgewood founders Martin Schwartz, Alan Schwartz and Jeff Segel have been heavily involved since then, running Dorel as senior executives and acting as directors. Another family member, Jeffrey Schwartz, is chief financial officer.

Together, the family holds 19.18 per cent of Dorel’s outstanding shares on an economic basis and 60.17-per-cent voting control, the company said in a news release. Family members have advised Dorel that they are not interested in any alternative transaction such as selling their shares or selling any of Dorel’s businesses or assets, the company said.

Efforts toward taking Dorel private began in December, 2019, when the family advised the board that they intended to look for a partner for a potential privatization. Independent directors on Dorel’s board then formed a special committee to oversee the process.

The company hired BMO Capital Markets as a financial adviser to contact more than 25 potential financial sponsor partners and solicit proposals from them. The family shareholders granted exclusivity to Cerberus in early September, according to Dorel’s statement.

The proposed price represents a 32-per-cent premium to the closing price of Dorel’s subordinate voting shares on Sept. 4 when Cerberus won exclusivity, the manufacturer said. It’s a 19-per-cent premium to the 60-day volume weighted average trading price on the Toronto Stock Exchange.

Dorel and the buyer group have given themselves until Nov. 10 to complete negotiations and strike a definitive agreement. The proposed transaction also needs approval from regulators, courts and a majority of votes cast by Dorel’s minority shareholders.

Regulatory filings show the company had two shareholders holding more than 10 per cent of the subordinate voting share class as of the end of April: Montreal investment firm Letko, Brosseau & Associates and Toronto-based Foyston, Gordon & Payne.

Letko said late Monday it would vote its 13.1 per cent stake against the proposal, calling it an “opportunistic” offer that significantly undervalues the company.

“We strongly believe on the long-term upside for the Company’s share,” Letko said in a statement. “We note that the Family Shareholders are of the same view since they plan to remain shareholders of the Company.”

Representatives from Foyston did not return calls seeking comment Monday. Schwartz family members declined to be interviewed while Cerberus officials could not be reached.

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