Why Dorel Industries (TSX:DII.B) Doubled Overnight!

Dorel Industries (TSX:DII.B) doubled in early Tuesday trading after receiving almost a billion in cash expected by early 2022. Here’s what happened.

| More on:
Arrowings ascending on a chalkboard

Image source: Getty Images.

Dorel Industries (TSX:DII.B) doubled in early morning trading on the TSX today due to a major announcement. The company will be selling Dorel sports, its bicycle segment, to Dutch mobility group Pon Holdings for US$810 million.

What happened?

The cash deal, which will be worth about $1 billion, will be used to pay down debt, for corporate purposes, and to return capital to shareholders, according to the statement. The deal should close before the first quarter of 2022

Dorel Sports has been a part of Dorel Industries since 2004, and management has seen great success, according to the statement. But the time came this year to create value, and that meant parting ways with this segment to create more value for shareholders.

“Acting on feedback from our shareholders, Dorel Industries embarked on a thorough review of strategic alternatives earlier this year. Our objective has consistently been to create value for our shareholders. The divestiture of Dorel Sports represents a unique opportunity to unlock value by capitalizing on strong demand for scaled assets in the bicycle segment,” said Martin Schwartz, Dorel president and CEO.

So what?

Bike sales were doing quite well during the pandemic, with Dorel Industries bringing in US$1.2 billion in annual sales. Yet shares hit a high back in July 2021 but have been in free fall since — until today, that is.

The sale provided a significant opportunity for Pon Holdings. When combined with the US$1.2 billion, the annual sales expected for the company will more than double to US$2.5 billion. And bike sales don’t look to be slowing down. In fact, with supply chain issues and major backlogs, prices are set to continue rising for the next few years.

So, clearly this is of benefit to Pon Holdings, but what are Motley Fool investors so excited about the deal for Dorel Industries?

Now what?

A billion dollars is a lot of money for a small-cap stock like Dorel Industries. The move strengthens the company’s balance sheet, and now it can generate profits from its other businesses. This includes its Home and Juvenile businesses through both organic and acquisition growth. The company also believes it’s a great time to look at overall cost structure to improve cash flow.

This comes as Dorel Industries continues to see a rise in costs due to supply chain demands and COVID-19. This caused the company to reduce its outlook from its Aug. 6th release. However, with this new influx of cash, when results are announced Nov. 5, hopefully, there is a more detailed outline of what investors can expect in the future. As of the last quarter, sales doubled. So, it’s likely we’ll continue to see good news from this company moving forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Path to retirement
Dividend Stocks

TFSA Investment Strategies: Top Canadian Companies to Add to Your Portfolio

A TFSA stock portfolio can be totally tax-free and more stable if holdings are limited to top Canadian companies.

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

These 3 Canadian Dividend Stocks Are Great Choices for Retirement Income

There’s no shortage of great Canadian dividend to establish a retirement income. Here’s a shortlist of investments to buy today.

Read more »

a person prepares to fight by taping their knuckles
Dividend Stocks

Quebecor Could Totally Disrupt the Big 3 Canadian Telecom Stocks

Quebecor stock can put up a fight against the Big Three Canadian telecoms, but not in the way you'd think!

Read more »

Female friends enjoying their dessert together at a mall
Dividend Stocks

How I’d Invest $300 a Month to Target a $3,000 Yearly Passive Income

Stocks can be a good source of passive income. All you need is to regularly invest in dividend stocks and…

Read more »

sad concerned deep in thought
Investing

Better Buy: EQB Stock or Manulife Stock?

EQB Inc. (TSX:EQB) and Manulife Financial Corp. (TSX:MFC) are two financial stocks that are worth consideration in the late spring…

Read more »

Happy Retirement” on a road
Investing

$100,000 in Savings, and These 2 Stocks Could Help You Retire in 12 Years

Have you started saving for your retirement? If you have $100,000 in savings, this guide can help you retire in…

Read more »

clock time
Bank Stocks

Interest Rates: Is Canada’s Mortgage Debt a Ticking Time Bomb?

If Canada's rising interest rates lead to a wave of defaults, banks like the Toronto-Dominion Bank could be in trouble.

Read more »

Close up shot of senior couple holding hand. Loving couple sitting together and holding hands. Focus on hands.
Dividend Stocks

These 2 Canadian Dividend Stocks Are a Retiree’s Best Friend

These large-cap Canadian dividend stocks can supplement your income post-retirement.

Read more »