Letko Brosseau Intends to Vote AGAINST Proposal to Take Dorel Industries Private

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Jan 29, 2021, 12:35 ET

MONTREAL, Jan. 29, 2021 /PRNewswire/ - Letko, Brosseau & Associates Inc., an independent investment manager that exercises investment control or direction over approximately 12.5% of the outstanding class B subordinate shares of Dorel Industries Inc. ("Dorel" or the "Company"), today reaffirmed its intention to vote AGAINST the proposed going private transaction of Dorel by Cerberus Capital Management, L.P. ("Cerberus") and the controlling shareholders of the Company (Martin Schwartz, Jeffrey Schwartz, Alan Schwartz and Jeff Segel or the "Family Shareholders"). The Family Shareholders, through their ownership of Dorel Class A and Class B shares, control approximately 20.3% of Dorel's outstanding shares on an economic basis and 60.8% on a voting basis.

We believe that the proposed offer of C$14.50 per share by Cerberus and the Family Shareholders is opportunistic and significantly undervalues the Company. We believe that the valuation prepared for Dorel Industries by TD Securities ("TD") in its Formal Valuation and Fairness Opinion is too conservative:

One of the methods used by TD is an analysis based on the value of comparable precedent transactions. Using this methodology, TD's analysis concludes the Company's equity value per share would range from C$14.22 to C$23.54, or a mid-point of C$18.88.
The major assumptions going into this calculation are EBITDA¹ multiples used for each Dorel business based on actual transactions of companies chosen as comparable.
EBITDA adjustments: TD and Dorel Management make various adjustments to Dorel's trailing 12-month EBITDA, reducing it by US$44.5 million or about 27%. The impact on TD's valuation calculation is a reduction of approximately C$15 per share.
Comparable precedent transactions multiples: The EBITDA multiples that TD has used to value Dorel's individual business segments are between 7-10X. The actual transactions² listed in the TD report have an average EBITDA multiple of between 10.9-11.7X. Using the average multiple would have added approximately C$18 per share to the valuation.
Finally, the TD valuation adjusts the non-cash net working capital balance by US$113.9m reducing the estimated value of Dorel by C$4.50 per share.
These adjustments total C$37.50 per share. Adding these back to TD's mid-point C$18.88 value per share results in an estimated value of C$56.38 per share.

We are not attempting to provide a precise valuation of Dorel Industries shares but simply note that valuation assumptions appear conservative and in contradiction to Dorel's financial statements and cited comparables with the effect of considerably reducing the Company's valuation.

We have been long time shareholders of Dorel. To protect the value of our investment, we intend to vote against the proposed going private transaction. We strongly believe in the long-term potential of the Company and note that the Family Shareholders share our optimism as they plan to remain shareholders of the Company.

Letko Brosseau is a Canadian independent investment manager founded in 1987. The firm manages assets for institutional investors and private clients.

FORWARD-LOOKING STATEMENTS

Certain information contained in this press release may constitute forward-looking statements. Forward-looking statements may include estimates, expectations, opinions, forecasts, projections, guidance or other statements that are not statements of fact. Although Letko Brosseau believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. These statements are subject to certain risks and uncertainties and may be based on assumptions that could cause actual results to differ materially from those anticipated or implied in the forward-looking statements. Letko Brosseau's forward-looking statements are expressly qualified in their entirety by this cautionary statement. The forward-looking statements contained in this press release are made as of the date hereof and Letko Brosseau does not assume any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise unless expressly required by applicable securities laws.

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¹ Earnings before interest, taxes, depreciation, and amortization

² 24 transactions are listed in the TD report: average multiples for Home Products, Juvenile Products and Sporting Goods are 11.7X, 11.1 and 10.9, respectively

SOURCE Letko, Brosseau & Associates Inc.