Vista Outdoor reported that Colt CZ Group had made an unsolicited offer to acquire the company for $30 per share, or $1.74 billion, potentially derailing a planned sale of Vista’s ammo business to Czechoslovak Group (CSG) and spinoff of the Outdoor Sports segment the company renamed Revelyst.

Colt CZ, based in the Czech Republic and its subsidiaries, is considered one of the world’s leading manufacturers of firearms, tactical accessories and ammunition. 

In October, Vista and CSG announced an agreement to merge Vista’s Sporting Products (ammo) business with CSG in an all-cash deal valuing it at $1.9 billion on an enterprise value basis, which includes debt. 

Colt CZ said it proposed keeping the company together, scrapping plans to separate Vista.

“The market’s view of the Czechoslovak Group transaction was clear in its reaction to the announcement, which resulted in the rapid fall in (Vista’s) share price on October 16, 2023,” Jan Drahota, Colt CZ’s CEO and chairman, said in a letter to Vista’s board published on its website late on Wednesday. 

“It is apparent to Colt CZ that, with the separation of the sporting products segment, the remaining outdoor products segment will be subscale as a stand-alone public company with substantial risks,” he added.

Colt CZ’s offer involves $900 million in new financing, including $600 million in new equity issued at the transaction price and $300 million in debt. Colt CZ added that it already had strong support from its lenders.

Under the CSG deal for vista’s ammo business, Jason Vanderbrink will remain CEO of the Sporting Products business, and the U.S. headquarters will remain in Anoka, MN. 

The company’s approximately 4,000 employees, working in four factories and the consumer brands CCI, Federal, HEVI-Shot, Remington, and Speer, will continue in connection with the transaction.

Vista Outdoor’s Outdoor Products business is set to become Revelyst, Inc. and trade on the New York Stock Exchange under the ticker “GEAR.” A former Hasbro executive, Eric Nyman was hired to guide the spinoff initially and will continue as Revelyst’s CEO. Revelyst’s brands include Foresight Sports, Bushnell Golf, Fox, Bell, Giro, CamelBak, QuietKat, Bushnell, Primos, Simms, Camp Chef and Stone Glacier.

The CSG deal was expected to close in calendar year 2024, subject to shareholder and regulatory approvals and other customary closing conditions.

In a statement last Wednesday evening, Vista Outdoor said that its board of directors had not decided on Colt’s offer, “nor has it changed its recommendation in support of the acquisition of its Sporting Products business by CSG.” Vista Outdoor stated that the CSG offer remains in effect.

The company said, “Vista Outdoor’s Board of Directors is carefully reviewing the Colt CZ Proposal, per its fiduciary duties and obligations under the existing merger agreement with CSG, in consultation with its financial and legal advisors. Vista Outdoor’s Board of Directors remains committed to acting in the best interests of Vista Outdoor stockholders.”

In a letter to Vista Outdoor’s shareholders, Colt CZ’s CEO Drahota said its offer was superior and would recapture the value Vista had lost over the 18 months since the company planned to spin off its outdoor products segment. Drahota’s letter follows.

Dear Directors,

As you are aware from our multiple prior interactions, Colt CZ Group SE (“Colt CZ”) has long admired the historic and leading brands within the Vista portfolio and, as one of your largest shareholders, we are writing to propose a transaction which we believe will 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. Over this time Vista’s share price has declined approximately 32%, falling 14% between the spin announcement and the day before the announcement of the sale of the Sporting Products segment to Czechoslovak Group and revised earnings guidance for 2024. 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.

Our superior proposal consists of a strategic combination between our businesses that would value Vista at $30/share and include a $900m buyback program executed post-closing, funded by $600m of new equity issued at the transaction price and an incremental $300m of debt. We would keep the company together, allowing continued upside for current Vista shareholders with the “New Vista” retaining its listing in the U.S. The attached presentation outlines our proposal in more detail.

It is apparent to Colt CZ that, with the separation of the Sporting Products segment, the remaining Outdoor Products segment will be subscale as a standalone public company with substantial risks. Once the cash-generative Sporting Products segment, with attractive EBITDA margins of over 30%, is separated, shareholders will be left with a business that currently has EBITDA margins of less than 8%. The Outdoor Products business will be overcapitalized and placed to continue its growth through acquisitions; however, based on history, your shareholders consider this strategy a substantial risk rather than an opportunity. 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.

Your shareholders also have concerns about the Sporting Products transaction. This deal poses regulatory risks and prolongs the time it will take to separate the businesses. Separation expenses have already exceeded $50 million and this process has created significant distraction and turnover that needs to be addressed.

We believe we can bring enormous value to the Sporting Products segment through a combination and also assist you in turning around the performance of Vista as a whole. A combination of Colt CZ and Vista would bring together the most iconic Western brands in the market, delivering a complete portfolio of sporting and outdoor brands to customers globally.

Colt CZ has a strong management team with a track record of value creation for its shareholders, including successfully turning around the Colt’s Manufacturing operations since its acquisition in 2021. As you have seen, we already received substantial commitments from our financing sources to underwrite a transaction with Vista.

Based on your current public valuation, your expectation that the multiples of each segment will be unlocked through separation has unfortunately not been borne out. As such, we propose that you engage with us regarding a superior alternative that enhances value for the current shareholders of Vista.

We look forward to promptly moving forward and, given the significant diligence we have already conducted on Vista, believe we could sign a transaction this calendar year. Please do not hesitate to reach out to me directly to discuss next steps.

Photo courtesy Colt CZ