Ammo maker’s deal tactics carry trigger warning

Vista Outdoor

25/09/2024 13:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Jonathan Guilford
       NEW YORK, Sept 24 (Reuters Breakingviews) - Go in guns
blazing and it’s easier to miss the target. A $3 billion hostile
takeover bid for Vista Outdoor  VSTO.N  has encountered fierce
resistance from the camping-and-ammo outfit, which keeps
maneuvering to divest its Remington brand instead. The latest
tactics, however, provide an abject lesson in overshooting on
defense.
    Vista, home to an ammunition business called Kinetic, took
aim at a valuation discount in 2022 by seeking to spin off its
outdoors-equipment seller, Revelyst. The decision attracted
defense contractor Czechoslovak Group, which offered to buy
Kinetic. Other suitors came and went, but one remains: MNC
Capital, led by former Vista board member Mark Gottfredson,
which has steadfastly sought to acquire the entire company for
cash.
    What started at $35 a share in February is now, after
multiple rejections, 23% higher, at $43. The entreaty values
Vista at more than $3 billion. It also avoids the risk that
Revelyst will suffer as a standalone company, especially with
peers trading unevenly of late.
    Although Vista deserves credit for squeezing nearly $500
million more out of MNC, it also has determinedly stuck with the
breakup plan. The Czech company sweetened its own bid for
Kinetic by 13%, to $2.2 billion. Some is new money; some is cash
Revelyst itself generated, or which would have bolstered its
balance sheet. Either way, Vista investor TIG Advisors, for one,
still opposes the Kinetic sale. Vista has delayed a shareholder
vote multiple times – most recently on Tuesday morning – and
lost the endorsement of advisory firm Institutional Shareholder
Services.
    The company pulled off a coup by engaging in separate talks
to offload Revelyst to a buyout shop that is working with, and
partly financing, MNC. This $1.1 billion mystery bid is
contingent on Kinetic being sold, too. Add it to the Kinetic
price tag, adjust for some $550 million of net debt, and
combined it would be worth roughly $46 per share, $3 more than
MNC’s entreaty.
    And yet in attempting to prove Revelyst’s attractive upside,
Vista accepted a $150 million minority investment in the unit
from Czechoslovak Group. The implied $2 billion valuation is
eye-popping: Vista’s entire market capitalization is $2.3
billion, and Revelyst accounts for less than half its revenue.
This ploy helps justify the company’s own optimism, but also
looks like a poison pill by setting a price no suitor can
match. Moreover, if a deal for the whole company falls through,
it might undermine the board’s claim of a reasonable
negotiation, giving potential copycats a fair trigger warning.

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    CONTEXT NEWS
    Vista Outdoor on Sept. 24 postponed a shareholder vote on
the sale of its ammunition segment, which includes the Remington
brand, to defense company Czechoslovak Group. In the latest of
multiple delays, the special meeting that had been rescheduled
for Sept. 27 is now provisionally set for Oct. 9.
    The agreed buyer sweetened the terms of its offer on Sept.
13 to $2.15 billion, increasing the upfront cash paid to
shareholders and agreeing to invest $150 million in Vista’s
remaining outdoor equipment unit, Revelyst, at an implied
valuation of $2 billion.
    Investment firm MNC Capital has sought to buy all of Vista
in partnership with an undisclosed buyout shop in a roughly $3
billion deal. Vista said on Sept. 18 that it had held separate
conversations with MNC’s partner about a potential transaction
involving Revelyst.
    The takeover target subsequently disclosed that the buyout
firm is only interested in a deal in which all of Vista is sold
at once, and will not entertain a standalone acquisition of
Revelyst.
    Morgan Stanley is advising Vista Outdoor while Moelis is
advising the company’s independent directors.

 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  GUILFORD/  
Jonathan.Guilford@thomsonreuters.com))