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Cerberus Deal Pits Toymaker’s Founding Family Against Top Holder

Kevin Orland
·3 min read

(Bloomberg) -- Cerberus Capital Management LP’s plan to help take a Quebec toy- and bike-maker private has kicked off a feud between the company’s founding families and a top shareholder.

The battle began when Dorel Industries Inc. -- which makes baby toys, strollers and car seats as well as bicycles and home furnishings -- announced a takeover agreement on Nov. 2 with Cerberus and members of the Schwartz family. The buyers offered to pay outside investors C$14.50 for each share.

Dorel’s second-biggest outside shareholder, Montreal-based asset manager Letko, Brosseau & Associates Inc., fired off a release hours later vowing to vote against what it called an “opportunistic” deal that “significantly undervalues the company.”

While squabbles between founders and outside investors aren’t new, the fight between Dorel and Letko Brosseau is rare in that the money manager has a shot at upending the buyout. The Dorel deal needs to be approved by a majority of the company’s minority, non-family shareholders.

That’s a much easier hurdle to block the deal for unhappy shareholders like Letko Brosseau, which said it owns about 13% of Dorel’s subordinate shares. That trails only Fidelity Management’s 18% stake, Bloomberg data show. Family shareholders own 19% of the Westmount, Quebec-based company through both share classes and control about 60% of the vote because of a dual-class share structure.

Dorel has often traded at or above the offer price since the deal was disclosed, indicating investors expect a higher bid. The stock has surged more than tenfold from a March low, driven by a pandemic-induced surge in demand for bicycles. Dorel traded at C$14.42 at 1:54 p.m. in Toronto on Friday.

Dorel was founded by Leo Schwartz in 1962 as a child-products maker. The company went public in 1987 following a merger with Ridgewood Industries, a ready-to-assemble furniture company started in 1969 by Martin Schwartz, Jeff Segel and Alan Schwartz. Dorel now makes Maxi-Cosi and Cosco brand car seats and strollers, Tiny Love baby toys, Cannondale and Schwinn bicycles and Signature Sleep and Dorel Living home furnishings.

The plan to take Dorel private began last December, when the family owners told the board they planned to seek a buyer. The board formed a special committee to supervise the process and hired BMO Capital Markets as an adviser. TD Securities later provided a fair-market value range of C$14 to C$17 a share for the firm. More than 25 possible suitors were contacted before Cerberus was granted exclusivity on Sept. 4, Dorel said.

Deal Premium

The Cerberus offer represents a 32% premium to Dorel’s closing price on Sept. 4, when the family shareholders granted exclusivity to the New York-based firm, Dorel said Friday in a statement.

“The family shareholders believe that the arrangement is a win for all of Dorel’s stakeholders, including the public shareholders,” Chief Executive Officer Martin Schwartz said in the statement.

Dorel declined further comment. Cerberus and Letko Brosseau didn’t respond to requests for comment.

Letko Brosseau has said the deal offered virtually no premium to the C$14.39 that the shares traded at the day before the transaction was announced. The firm, which manages about C$20.1 billion ($15.3 billion), said the proposal undervalues Dorel’s earnings and cash flow, noting that the company’s sports and furnishings divisions reported record revenues in the second quarter.

“We strongly believe on the long-term upside for the company’s share,” Letko Brosseau said in its Nov. 2 statement. “We note that the family shareholders are of the same view since they plan to remain shareholders of the company.”

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