Brookfield Asset Management Inc.'s private equity arm has bought almost 11 per cent of Performance Sports Group Ltd., signalling a show of support for the troubled sports equipment manufacturer amid widespread market uncertainty about its financial status.
Brookfield Capital Partners Ltd. and some related entities have bought 4.9 million shares of PSG since Aug. 26, according to filings with the U.S. Securities and Exchange Commission (SEC).
The Toronto-based asset manager's share purchases come at a precarious time for PSG, raising questions about Brookfield's intentions for the beleaguered maker of Bauer and Easton gear for hockey and baseball players.
Last month, PSG disclosed that it is under investigation by the SEC, and has hired internal investigators to probe its accounting practices.
The company is drowning in debt, owing $440-million (U.S.) to its lenders. After missing its Aug. 15 deadline to file its financial statements for the fiscal year ended May 31, PSG negotiated a 60-day extension to its short-term borrowing facilities, giving it until Oct. 28 to file audited statements. PSG said it has hired U.S. investment bank Centerview Partners LLC to help review its strategic alternatives.
None of this should come as news to Brookfield.
As a private equity fund, Brookfield Capital often takes a controlling stake in underperforming companies to steer a turnaround, but it is unclear whether the fund has a strategy to further increase its ownership or has a strategic plan for the company.
Brookfield Capital Partners spokeswoman Jennifer Ritchie had no comment on the purchase, saying the company does not discuss its investments. A spokesman for PSG did not return a request for comment on Wednesday.
Some analysts have suggested PSG could create the most value for investors by selling off its businesses in pieces.
Analysts at California investment bank Roth Capital Partners estimated in a Sept. 1 report that PSG's brands were worth about $1-billion, with the bulk of the value in its iconic Bauer hockey business. This is more than PSG's enterprise value, which Roth pegged at about $470-million.
"While we continue to see value in PSG's platform, we see asset sales as a likely alternative to address the company's debt burden," analysts Dave King and Nicholas Meyers said in their note.
Despite the company's financial and regulatory troubles, other investors have also taken stakes in PSG in the past month.
U.S. hedge fund Coliseum Capital Management LLC bought shares between Aug. 15 and Aug. 24 to bring its total ownership level to 9.8 per cent.
U.K.-based retailer Sports Direct International PLC also disclosed it bought a 5.5-per-cent stake in the company between mid-June and mid-August, although the company disclosed Wednesday it has more recently reduced its ownership stake to 4.1 per cent.
RBC Dominion Securities Inc. analyst Sabahat Khan said in an Aug. 19 report that Sports Direct, which has a sizable footprint of sporting goods stores across Europe, has a track record of taking strategic stakes in companies with which it wants to do more business, or to gain access to their brands.
Filings show Brookfield bought its 4.9 million shares over many days from Aug. 26 until Monday, with the largest purchases coming on Sept. 2, when it bought 2.1 million shares in three large pieces.
Sept. 2 was an unusual day for PSG. Its shares jumped 30 per cent in the final hour of trading. Then, after the markets closed that day, PSG's biggest shareholder, Sagard Capital Partners, said it had terminated a shareholder nomination agreement with the company, adding it would consider a range of investment options, including buying all of PSG or selling its stake.
Brookfield accounted for 41 per cent of the over 5.1 million shares traded on Sept. 2 in New York and Toronto.
Brookfield spokeswoman Suzanne Fleming said in an e-mail that the company had no comment about the timing of its Sept. 2 trading or whether Brookfield has worked with Sagard in any respect.
Brookfield's regulatory filings said it paid a total of $14.2-million for its 10.8-per-cent stake. Shares of PSG have soared by 108 per cent since Brookfield first began its buying spree.