(Reuters) - Canada’s Dorel Industries Inc (DIIb.TO), said it would buy a 70 percent stake in Brazil’s largest bicycle company, Caloi, helping the maker of Cannondale and Schwinn range of bicycles to expand in the South American country.
The deal would boost Dorels’ bicycle revenue to more than $1 billion, helping prop up its recreational unit, which sells bicycles, after wet weather across North America and Europe earlier this year led to heavy discounts and poor sales.
Dorel in June warned that full-year earnings from the bicycle business would be lower than 2012 and said it would cut about 5 percent of the jobs at the business.
The Montreal-based company on Thursday said the purchase price for Caloi was a high-single digit multiple of its earnings before interest, tax, depreciation and amortization.
Dorel said Sao Paulo-based Caloi’s revenue rose 22 percent to 273.5 million reais ($113.18 million) in 2012, and it has a market share of more than 40 percent in Brazil.
Dorel said it would make Brazil a production hub, assembling bikes in Caloi’s plant in Manaus, which it said was the largest outside Southeast Asia, making over 700,000 units a year.
Dorel, which has been doing business in Brazil since 2009, said it expects the deal to add to its earnings immediately.
Its recreational business, which also sells apparel, reported full-year revenue of about $900 million in 2012.
Last September, Dorel said it would buy a 70 percent stake in two juvenile product businesses to expand in Latin America.
Dorel shares closed at C$34.31 on the Toronto Stock Exchange on Wednesday.
($1 = 2.42 Brazilian reais)
Reporting By Sneha Banerjee; Editing by Savio D'Souza