Asset manager Onex Corp. ONEX-T is preparing to exit a 26-year investment in Celestica Inc. CLS-T, announcing plans to convert its multivoting shares in the tech manufacturer for single-vote stock and potentially sell its holding in the former dot-com darling.
On Tuesday, Toronto-based Onex said in approximately six months it will convert 18.6 million shares in Celestica that each have 25 votes into the same amount of the company’s single-vote shares. The move will lower Onex’s voting power at Celestica to 15.8 per cent from 82 per cent. Based on Onex’s regulatory filings, RBC Capital Markets analyst Paul Treiber said in a report the fund manager is setting up for the sale of all or part of its Celestica stake.
“Celestica and Onex have shared a productive relationship for over 25 years,” Bobby Le Blanc, president of Onex, said in a press release. “The planned conversion of Onex’s multiple voting shares and the simplification of Celestica’s voting structure is the natural next step in the company’s evolution.”
Onex acquired Celestica in 1996 from International Business Machines Corp. for US$550-million, putting US$149-million of its own capital and borrowing the rest. Celestica continued to make components for IBM and added numerous other clients, as brand-name tech companies outsourced an increasing share of their manufacturing.
Celestica went public in 1998, and Onex sold a portion of its stake as the stock soared during the tech boom. To date, Onex has made US$801-million on the investment, and holds a stake that is currently worth US$240-million.
In recent years, Celestica’s stock price went sideways as sales and profit growth stalled. The company recruited new leaders, including chief executive officer Rob Mionis, who took the helm in 2015. The company is attempting to kick-start growth by winning contracts from both its traditional tech clients and customers in new sectors, such as aerospace, defence and health care.
On Tuesday, Mr. Mionis said in a press release that Celestica’s operating margins and earnings per share hit record levels in 2022. “Celestica is a much different company than it was just five years ago,” Mr. Mionis said. On Onex’s stock conversion, he said: “We view this as the next logical phase in the company’s transformation.”
Celestica is one of the world’s largest electronics manufacturers, with forecast sales this year of US$7.5-billion. Its stock trades at a significant discount to the valuation of peers and analysts say eliminating Celestica’s dual share structure should help narrow this gap.
“Onex possibly selling its position in Celestica may be a short-term overhang on the stock,” Mr. Treiber said. “However, the conversion of Onex’s multiple voting shares to single voting shares may help reduce Celestica’s valuation discount over time.”
Andrew Willis