On Monday, July 29, Gamco Asset Management, Inc., formerly Gabelli Asset Management Company, became the third investor group to indicate it would vote against Vista Outdoor’s planned sale of The Kinetic Group, its ammunition segment, to Czechoslovak Group (CSG). The shareholder vote to approve/reject the sale to CSG is scheduled to take place on Tuesday, July 30.
Gamco, which claims to control 613,207 of Vista’s shares or a 1.05 percent stake, included a letter to Michael Callahan, chairman of Vista. In the letter, Gamco, based in Greenwich, CT, said it views the competing all-cash offer by MNC Capital to outright buy Vista for $42 as “superior” to the proposed sale of Kinetic, which includes the Federal, Remington, CCI, Hevi-Shot, and Speer ammunition brands. The company encouraged Vista’s board to “reconsider its position and engage with MNC Capital.”
Gamco said the sale of Kinetic to CSG would leave shareholders open to “significant execution risk” tied to the turnaround prospects for Vista’s outdoor sporting products division, Revelyst. As part of the CSG transaction, Vista shareholders would receive $24 in cash consideration for each Vista share they hold, plus a share of Revelyst.
Upon Kinetic’s spinoff, Revelyst would continue as a standalone public company. The business operates three segments: Adventure Sports (Fox Racing, Bell, Giro, CamelBak, QuietKat, and Blackburn); Outdoor Performance (Simms, Bushnell, Blackhawk, Stone Glacier, Camp Chef, and Primos) and Precision Sports and Technology (Foresight Sports, Bushnell Golf and Pinseeker).
Gamco said, “We believe shareholders have not been fully informed about the potential extent of execution risk involved in the financial targets laid out for Revelyst, especially since the company will be led by a CEO with no previous experience as the CEO of a public company. Furthermore, we believe that the $42 offer from MNC Capital offers fair certainty values for both businesses of Vista Outdoor.”
Gamco added that the “valuation disconnect between investors and the board (along with its advisors) may stem from Vista’s history of missing financial targets and overpaying on outdoor acquisitions, which has led to significant value destruction.”
CSG made its initial offer to acquire Kinetic last October with a $1.91 billion offer, including a cash consideration of $12.90 a share to Vista shareholders. In early March, MNC Capital submitted its first proposal to acquire Vista Outdoor in its entirety for $35 a share. Subsequently, both suitors have increased their respective offers while issuing countless press releases promoting the merits of their proposals.
The latest round arrived on July 22 when Vista announced that CSG sweetened its bid for The Kinetic Group by $50 million to $2.15 billion, marking the fourth time CSG had raised its bid for the ammo business. Vista increased the cash consideration for stockholders by $3 to $24 per share to sweeten the deal further.
MNC increased its all-cash offer to outright acquire Vista to $42 per share on June 26, marking the third time it had increased its bid. It also indicated that it would be its final offer. Vista’s board rejected that offer on July 10.
Vista said in a statement on July 22, “Vista Outdoor firmly believes this increased offer is superior to MNC Capital’s proposal of $42.00 per share as the CSG Transaction allows stockholders to lock in the $2.15 billion purchase price for The Kinetic Group and benefit from both the expected increase in multiple from the separation of Revelyst into a standalone company as well as participate in the significant EBITDA expansion through growth in the Revelyst business and $100 million of cost savings from the Gear Up program over the next three years.”
Vista urged shareholders to look at the “significant increase in value” of the CSG deal since the merger agreement was first signed last October. Vista said, “In summary, the CSG Transaction delivers $430 million (~$7.25 per share) in additional value to Vista Outdoor stockholders since CSG’s original offer and enables stockholders to receive 100% of the cash that the Company has generated in the interim period plus retain the upside in Revelyst.”
Vista again adjourned its shareholder meeting to vote on the sale to July 30 from July 23 to accommodate a revised bid and said it expected the deal with CSG to close in early August.
Vista also reaffirmed its outlook for the year while pre-announcing fiscal first-quarter results that showed continued weakness at the Revelyst outdoor products business.
In response, MNC, in a release issued July 22, reiterated its commitment to its previously announced “fully financed $42 per share all-cash offer” for Vista outright despite the continued weakness seen at Revelyst. MNC also said it was willing to make a tender offer directly to Vista’s shareholders if Vista approved of MNC making the offer and allowing shareholders to decide whether to accept it.
“We want Vista shareholders to know that we are committed to our offer and will not reduce the $42 price,” stated MNC Managing Director Mark Gottfredson. “To demonstrate that commitment, we are willing to make a tender offer and hope that Vista would agree to our making the offer so shareholders can decide.”
In response to MNC’s statement, Vista, in a follow-up press release dated July 22, charged that MNC had misled investors by claiming that it needed Vista’s approval to make a tender offer. Vista said, “We want to set the record straight—MNC is not subject to any restrictions from Vista Outdoor that would require Vista Outdoor to consent to MNC making an unsolicited tender offer.”
Vista also reiterated that its board had rejected MNC’s latest offer on July 10.
“Vista Outdoor does not support MNC’s proposal and firmly believes that the transaction with Czechoslovak Group a.s. (CSG) is superior,” said the company. “Vista Outdoor continues to strongly recommend the CSG transaction, which can close in early August after receipt of Vista Outdoor stockholder approval at the July 30 special meeting.”
Vista had rejected MNC’s latest offer because it said it undervalued Revelyst’s business. Vista also said the MNC deal would “take several months to close” given due diligence and questioned MNC’s financing. However, two other investor groups beyond GAMCO have come out endorsing MNC’s bid.
Gates Capital Backs MNC Offer
Gates Capital Management, Inc., which controls 5.6 million of Vista’s shares, or 9.6 percent, issued statements on July 17, July 19 and July 26 indicating it opposed the CSG transaction and urged Vista to “immediately begin negotiating a merger agreement with MNC.”
In its most recent statement, Gates Capital noted that if shareholders assumed CSG and MNC are each paying the same $2.15 billion for the ammo business, then MNC is also paying approximately $900 million additional cash for Revelyst, which generated approximately $40 million of EBITDA the last twelve months (LTM) ended June 2024, after subtracting $50 million of corporate costs.
At those levels, the MNC proposal would pay shareholders approximately 22x LTM EBITDA for Revelyst, “which we believe is attractive given the increasing risk of Vista failing to achieve its operating goals for Revelyst,” according to Gates Capital.
Gates Capital also noted that Vista, in its July 22 release, reiterated its expectations to double Revelyst’s EBITDA in FY25, but also posted negative operating income at Revelyst for the quarter with sales declining more than 13 percent and EBITDA margin down nearly 200 basis points. Gates Capital said, “We believe these current trends have made a spin-off, or owning Revelyst as a standalone, sub-scale public company, less attractive than selling the entire company.”
TIG Advisors Supports MNC’s Offer
TIG Advisors, which owns 532,000 shares of Vista, in a letter dated July 12, urged Vista’s board to reconsider MNC’s “far superior“ offer, again tied to low expectations around Revelyst’s prospects.
TIG Advisors said Vista’s CSG transaction proposal includes “unrealistic potential trading values“ for Revelyst based on “aggressive assumptions“ that Revelyst could double EBITDA in FY2025 and trade at 10.0x EV/EBITDA. TIG Advisors said, “the multiple represents the high end of Vista’s advisors’ estimate potential EV/EBITDA trading range of 7.0x to 10.0x.”
The investment firm also questioned the certainty of Revelyst’s “Gear Up“ transformation plan’s payback, which “requires years to achieve.“
At the same time, TIG Advisors said Vista has “relentlessly pressured the market to believe that the MNC offer significantly undervalues Revelyst based on an unproven turnaround story.“ The group added that the board is now “forcing shareholders to either accept the CSG deal or nothing,“ and it believes the MNC offer “presents both maximum certainty of value and less execution risk.”
TIG Advisors concluded, “We believe the MNC offer is a clear premium to the total value created from the combination of the transaction with CSG and the Revelyst stub. We see it now as a clear choice to vote against the CSG transaction and, in doing so, call upon the Board to engage with MNC.”
Investment Advisory Firms Deliver Mixed Opinions On Vista’s Deals
Among independent investment advisory firms, Institutional Shareholder Services (ISS), on June 20, changed its opinion from recommending shareholders approve the CSG purchase of the ammunition business to abstaining from voting on the deal in part due to “the regulatory risk surrounding the CSG offer for Kinetic.“ The proxy advisor also cited the “valuation uncertainty“ of the standalone Revelyst business and MNC’s alternative offer to acquire Vista’s entire business.
On June 26, Vista reported that it received regulatory approval from an interagency committee of the U.S. government for the sale of Kinetic to CSG. However, ISS continued to call for shareholders to abstain from voting. In an updated recommendation reported by Reuters, ISS wrote, “Continue to abstain on the proposed merger; support the adjournment proposal.”
In an updated report issued July 17, Glass Lewis & Co. recommended Vista shareholders approve the CSG transaction. Glass Lewis said that with the CSG proposal, Vista shareholders “would receive a fairly significant amount of cash consideration while maintaining ongoing participation in the Outdoor Products Business via the newly-issued shares of Revelyst common stock.”
Glass Lewis added that while CSG had raised its offer price for the Kinetic business, “the goalposts have moved with respect to the implied valuation of the company as a whole,“ and MNC has not moved past its $42 offer.
Glass Lewis also said, “Upon closer review of the company’s circumstances, we believe the company is at or close to a key inflection point. Given the recent management changes, coupled with signs that the company is successfully executing its various strategic and cost-saving initiatives, we believe the company should be poised to deliver on its turnaround efforts for the Outdoor Products Business.“
Analysts View Opening For MNC Bid
Some analysts felt the news on July 22 of CSG’s last increased offer, Vista’s quarterly update and MNC’s re-commitment to its offer could increase the chance for acceptance of MNC’s bid. Shares rose 96 cents, or 2.6 percent, to $38.53 on the day as analysts saw the news of MNC’s re-commitment offsetting a disappointing first-quarter results forecast for Revelyst.
Matt Koranda, at Roth Capital Partners, wrote in a note at that time that the higher CSG offer and improved upfront cash consideration “could help push some shareholders toward the Board’s preferred option,“ citing the CSG transaction; however, he also saw Vista’s move to push back the shareholder vote by a week, to July 30 from July 23, as a sign that Vista was not confident it had enough shareholder votes to pass the CSG proposal. Koranda wrote, “We read this as an indication that the CSG vote could be tight as we doubt Vista will put the transaction to a vote unless it is clear that the measure will pass.”
Koranda also noted that MNC “threw another curveball by suggesting a tender offer for $42/share in cash may be possible.”
In a written note issued July 22, Anna Glaessgen at B. Riley Securities said the “relative attractiveness of the CSG deal hinges on the achievability of Revelyst’s targets,“ and Revelyst’s weakness in the quarter could cause investors to favor MNC’s deal.
Glaessgen added, “We’re pleased to see that annual expectations are intact, though we expect greater skepticism applied to the Revelyst outlook given the F1Q shortfall and meaningful margin ramp required to get to annual targets.“
Now, we wait for the stockholder vote.
Images courtesy Vista Outdoor/Remington
