Vista Outdoor announced it received an offer last Wednesday from Colt CZ Group to buy the company for $30 per share, or $1.74 billion, which, if accepted, would scrap the deal announced earlier this year to sell Vista’s sporting products business to Czechoslovak Group (CSG) and spin off Vista’s outdoor segment into a new company called Revelyst.
Jan Drahota, CEO and Chairman of Colt CZ, said in a letter to Vista’s board that the proposal would “recapture shareholder value that has been lost over the 18 months since the initial announcement of your intent to spin off the Outdoor Products segment.”
In October, Vista announced it was selling its sporting products business, which focuses on making and selling ammunition, to Czechoslovak Group for $1.91 billion. It would spin off Revelyst into its own company when the sale closes.
“Over this time Vista’s share price has declined approximately 32%, falling 14% between the spin-off announcement and the day before announcement of the sale of the Sporting Products segment to Czechoslovak Group and revised earnings guidance for 2024,” Drahota wrote. “The market’s view of the Czechoslovak Group transaction was clear in its reaction to the announcement, which resulted in the rapid fall in share price on October 16, 2023.”
Spin-off “A Substantial Risk”
Colt CZ is a leading manufacturer of guns and ammo and is based in the Czech Republic, as is the Czechoslovak Group, which is buying Vista’s sporting goods division. Colt CZ also owns a 2.4% equity stake in Vista.
Colt’s proposal would value Vista at $30 a share and includes a $900 million buyback program to be executed post-closing, funded by $600 million of new equity issued at the transaction price and an incremental $300 million of debt.
In Drahota’s view, Vista’s plan to spin off the outdoor products division would make the company overcapitalized and reliant on growth through acquisitions.
“Based on history, your shareholders consider this strategy a substantial risk rather than an opportunity,” he wrote. “Separation of the businesses may ultimately be the right path, but the timing is wrong today, and at least until confidence is re-established in the company and performance of the business is turned around.”
Merger Agreement Remains in Effect
In a news release, Vista said its board has not made any determination with respect to the Colt CZ proposal within the framework contemplated by the existing merger agreement with CSG, which remains in effect, nor has it changed its recommendation in support of the acquisition of its sporting products business by CSG.
“Vista Outdoor’s Board of Directors will carefully review the Colt CZ Proposal, in accordance with its fiduciary duties and its obligations under the existing merger agreement with CSG, in consultation with its financial and legal advisors,” the company wrote. “Vista Outdoor’s Board of Directors remains committed to acting in the best interests of Vista Outdoor stockholders.”
Analyst Recommends Rejecting Offer
Eric Wold, a stock analyst who covers Vista for investment bank B. Riley Securities, said in a note released Friday that Colt’s proposal not only overlooks the potential for the outdoor segment to improve financially next year, but fails to consider the regulatory risks of combining Vista and Colt and “the likelihood that the valuation multiple of the combined company will remain constrained.”
Wold wrote that his firm is projecting “meaningful” improvements in the outdoor segment as volumes improve and retailers return to normalized inventory restocking patterns.
“Given our view that the proposed combination with Colt CZ Group is inferior to the current plan to sell the Sporting Products segment to Czechoslovak Group and keep the outdoor products segment as a stand-alone public company, we prefer that the board rejects this offer,” Wold wrote.
In its most recent filing, Vista Outdoor reported overall sales were down for the quarter ended Sept. 24. Company-wide, sales decreased 13% to $677 million compared to the prior-year period.
In Vista’s outdoor products segment – the segment that would eventually become Revelyst – sales decreased to $327 million, down 6% compared to the same period last year.
Revelyst’s portfolio of brands includes Fox, Bell, Giro, CamelBak, Camp Chef, Bushnell, and Simms Fishing.
Andy Keegan, vice president and interim CFO of Vista Outdoor, plans to join Revelyst as CFO. Eric Nyman will continue as CEO of outdoor products and become the CEO of Revelyst should the transaction close.
Prior History
At issue is also the question of whether Vista’s outdoor brands are hurt by being connected to the company’s ammo or gun-related business.
In 2018, REI put orders on hold for all Vista-owned brands, saying, “Vista Outdoor chose not to engage in the national conversation about common-sense gun safety solutions that followed the tragic mass shooting at Marjory Stoneman Douglas High School in Parkland, Florida.” At the time Vista owned gun brand Savage Arms.
REI resumed orders the following year with Giro, Bell, CamelBak, Blackburn and Camp Chef, but only after Vista sold off Savage Arms.
