Dorel will have a lot of cash leftover

Dorel announced the unloading of its sport division today for US$810 million.

This company was trading for less than CAD$2/share during the pits of Covid-19 and made its way back up to $16 (management attempted to go private at this price) before sliding down again to $10.42 on the last Friday close.

I have held the company in the past, although it was one of the ones that I jettisoned during Covid in favour of others (which turned out to be a mistake, but c’est la vie).

My chief complaint about this company was that the entrenchment of management and their very large compensation was a bit off-putting. The business itself is quite diversified, one level up from retail on the value chain – still very low margin and they probably will be facing significant cost and logistical pressures with all of the supply chain anarchy going on.

After they conclude their sports division sale, however, they’re going to have a lot more cash to deal with. If you zero out their debt and cash, and the added proceeds of US$810 million from this sale, you are left with about US$446 million net cash at the end of the day.

On 32.5 million shares outstanding, that’s about CAD$17/share in cash alone.

The company will have a capital gains tax bill to pay off as a result of this transaction, but it still will be in a strongly cash positive position, which means it is most likely they will give out one huge special dividend when this is over with.

It will be interesting to see how this stock will trade on Tuesday morning – undoubtedly it will be higher, but how much?