Institutional Shareholder Services (ISS) is now calling on Vista Outdoor shareholders to abstain from voting on Vista’s $1.96 billion sale of its Kinetic Group ammunition business unit to Czechoslovakia Group (CSG) after recommending shareholders approve the sale only three weeks ago.

The proxy advisor cited risks that the sale to CSG could pass a U.S. national security review coupled with an existing alternative offer by MNC Capital to acquire Vista’s entire business.

“We find that given the regulatory risk surrounding the CSG offer for Kinetic and the valuation uncertainty of a standalone Revelyst, MNC’s $39.50 bid forms, at the very least, a reasonable basis for negotiating a cash transaction that would represent a better risk-adjusted outcome for shareholders,” ISS wrote in an “update” on June 20.

The proxy adviser recommended shareholders abstain from the CSG merger agreement and support a plan whereby Vista adjourns the special meeting again and reengages with MNC.

In a report dated May 31, ISS recommended that Vista shareholders vote “For” the sale of Kinetic to CSG. In reaching its conclusion, ISS said Vista’s board “appears to have conducted a reasonable strategic review” that included outreach to 26 parties, receiving five offers and multiple increases to the offer price. ISS noted that the process included a one-month adjournment to consider a sweetened offer from MNC, during which CSG improved its offer.

Last October, Vista entered into a $1.91 billion deal to sell Kinetic, which includes the Federal, Remington, CCI, Hevi-Shot, and Speer ammunition brands, to CSG. In late May, CSG raised its offer by $50 million to $1.96 billion. The updated offer also increased the cash consideration payable to Vista stockholders to $16.00 in cash.

ISS added in its initial recommendation, “The cash portion of consideration provides certainty of value for [The Kinetic Group business], and the stock portion provides VSTO shareholders the ability to participate in the potential upside of the [Revelyst business]. In light of these factors, support for this proposal is warranted.”

Before ISS’ May 31 recommendation, MNC, on March 25, raised its takeover offer to acquire Vista Outdoor outright to $37.50 a share, or $3 billion, up from a bid of $35.00 a share the prior month. On June 10, Vista rejected MNC’s upgraded offer, calling it still unfavorable to Vista stockholders compared to the transactions contemplated by the CSG merger agreement.

ISS’s switch to calling for voters to abstain from voting could be due to signs of intensified bidding over Vista’s assets.

Vista on June 10 reported it received an all-cash $2 billion takeover offer for its ammunition business from an unnamed private U.S. investment firm that the Financial Times identified as JDH Capital, the investment group run by Texas oil billionaire Jeffrey Hildebrand. JDH Capital purchased Savage, a firearms manufacturer, from Vista in 2019 and, in April of this year, acquired Clarus’ Precision Sport segment, including Sierra Bullets and Barnes Bullets.

By June 17, Vista reported that JDH had withdrawn its offer due to pressure from MNC. Vista said MNC alleged that JDH violated certain contractual agreements between itself and MNC that purportedly restricted JDH’s ability to submit an offer for Kinetic Group. Vista said it learned that the agreements were in connection with MNC’s and JDH’s consideration of a joint bid for Kinetic as part of the prior sales process for that business in 2023. Vista also said JDH disputed MNC’s allegations.

Vista’s board again recommended the sale of Kinetic to CSG. Vista said, “CSG will be an excellent owner of The Kinetic Group with a strong commitment to U.S. manufacturing and its American workforce and deep expertise in supply chain excellence, ammunition manufacturing and support for NATO and allied nations. We look forward to a successful shareholder vote on July 2 and remain confident that the transaction with CSG will receive clearance from CFIUS.”

Hanging over the CSG is clearance from the Committee on Foreign Investment in the United States (CFIUS), which could have also played a significant role in ISS’s opinion change. The government’s decision to approve or reject the deal is expected later this month. The Czech group’s offer had sparked warnings from Republican politicians about putting a leading U.S. ammunition supplier under foreign ownership.

CSG’s Owner and Chair, Michal Strnad, rejected the political criticism, noting that the Czech company had already received congressional clearance to buy two ammunition factories in the U.S. as part of a separate 2022 acquisition, while his company also has NATO approval as a large weapons supplier.

However, Strnad admitted in 2022 that it took his company “seven long months to win CFIUS approval for its acquisition of Fiocchi, another arms maker based in Italy. The Czech group is one of the European arms companies playing a leading role in supplying Ukraine in its war against Russia.

MNC has argued that the CSG deal would give a foreign-owned company commanding control of the West’s supply of primers, the propellant used in ammunition manufacturing.

The CSG sale would leave Vista’s non-firearm division, Revelyst, as a standalone public company.

Revelyst 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).

Vista’s shareholder vote on the CSG deal is set for July 2.

Image courtesy Vista Outdoor / Speer Ammo

See below for more SGB Media coverage of this ongoing saga…

Vista Outdoor Sees Alternative Ammo Bidder Withdraw Offer

MNC Capital Ups Offer for Vista Outdoor to $3.0 Billion

Vista Outdoor Sees Enhanced Ammo Business Bid from CSG; Again Rejects MNC Interest

EXEC: Vista Outdoor Re-Engages with MNC Capital on Potential Buy-Out Interest