(Bloomberg) -- Canadian Tire Corp. agreed to buy Helly Hansen for C$985 million ($770 million) from the Ontario Teachers’ Pension Plan, adding a global maker of outdoor clothing to the Canadian retailer’s product lines. The stock plunged the most in almost three years as investors balked at the price and the risk of global expansion.
The acquisition builds on the 2011 purchase of Forzani Group, the owner of the Sport Chek chain, which helped the 96-year-old company diversify away from automotive and home appliances and capture younger customers with sporting goods and outdoor gear.
Canadian Tire has been selling Helly Hansen goods for a decade and plans to extend the assortment across its banners. It also see opportunities in the brand’s wholesale and distribution footprint in more than 40 countries.
“Helly Hansen is an exceptional fit,” Stephen Wetmore, president and chief executive officer of Canadian Tire, said on a conference call. “Internationally, Helly Hansen has created a substantial operation and has successfully and profitably entered many markets. This, too, will serve as a foundation for us to build upon in future years for the existing or new owned brands.”
Paul Stoneham, a Canadian, will continue to run Helly Hansen as CEO from Oslo, where the company was founded in 1877 as a supplier of jackets and pants “for the harshest outdoor conditions.” Helly Hansen was purchased by Toronto-based Ontario Teachers’ in 2012 for an undisclosed price.
The Canadian company will also take on C$50 million of operating debt, according to a statement from the Toronto-based firm Thursday.
Wetmore was brought back to Canadian Tire in 2016 to navigate a fast changing retail landscape after the ousting of Michael Medline. Measures have included beefing up the retailer’s own brands, fighting silos by bringing various businesses under one leadership and testing home delivery.
Shares fell as much as 6.9 percent in intraday trading, the biggest drop since August 2015. The stock traded down 5.3 percent to C$166 at 11:15 a.m. in Toronto. Part of the concern is linked to the price, which amounts to about 20 times the enterprise value to profit, according to Brittany Weissman, an analyst at Edward Jones. Venturing overseas is also making investors jittery, she said.
“There’s a big long-term opportunity there, but I think there’s some nervousness around it in the near term, and the price that they paid,” Weissman said in a phone interview. “It is uncharted waters for the company.”
Bikes to Pipes
The company has 1,700 retail or gasoline outlets run directly or via independent dealers, including the ubiquitous Canadian Tire chain that sells everything from barbecues to bikes to plumbing supplies.
The purchase “marks a leap forward in CTC’s highly successful owned brand strategy, and propels it into a new realm of brand management and distribution,” Mark Petrie, an analyst with CIBC World Markets, wrote in a note to investors. One limited risk is a potential interruption of supply to competing retailers, he wrote.
Helly Hansen’s profit margins lag outerwear peers and generates about 15 percent of revenue through direct-to-consumers channels, according to Petrie. Sales rose 18 percent in 2017 to 2.9 billion krona ($360 million).
Prior to the announcement, Canadian Tire shares had jumped 7 percent this year, outpacing the 2 percent decline in the Standard & Poor’s/TSX Composite Index in Canada. The company has a market value of almost C$12 billion.
The retailer also reported that first-quarter earnings per share fell 5.3 percent from a year earlier to C$1.18. Consolidated same-store sales rose 5.2 percent.
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