EXEC: Wall Street Debates Shareholder Approval for Vista Outdoor’s CSG Deal

Wall Street analysts appear split on whether Vista Outdoor’s sale of its Kinetic ammunition business to Czechoslovak Group a.s. (CSG) will go through after receiving a long-awaited regulatory approval or whether a higher bid from MNC Capital for the entire business and a potential DOJ investigation could derail the deal.

On Wednesday morning, June 26, MNC reported it increased its all-cash offer to acquire Vista at $42 per share, or about $3.2 billion, from its offer of $39.50 per share made on June 6. The Dallas-based investment firm indicated it was its best and final offer.

In a press release issued late afternoon on Tuesday, June 25, Vista said it received clearance from the Committee on Foreign Investment in the United States (CFIUS) for the sale of its Kinetic business, which includes the Federal, Remington, CCI, Hevi-Shot, and Speer ammunition brands, to Prague-based CSG.

The approval from CFIUS faced some uncertainty as several conservative lawmakers, including Ohio Senator J.D. Vance, and law enforcement groups raised concerns to the committee about a major U.S. manufacturer of ammunition and primers, the propellant used in ammunition manufacturing, being purchased by a company based in the Czech Republic.

On June 26, Vista reported that CSG had increased its offer for Kinetic by $40 million from $2 billion. The higher offer came as Institutional Shareholder Services (ISS) called on Vista shareholders to abstain from voting to approve the sale, citing risks that the sale to CSG could pass a U.S. national security review.

Shares of Vista on Wednesday, June 26, rose $3.08, or 9.1 percent, to $36.86 on both the CFIUS clearance and fresh MNC bid.

Vista called CFIUS approval the “final regulatory hurdle” to its Kinetic sale and reaffirmed its recommendation that shareholders vote to approve the sale at a meeting scheduled for July 2. On Thursday morning, June 27, Vista said it had postponed the shareholder vote until July 23 to consider the revised MNC offer.

Under the CSG transaction, Vista shareholders will receive $18 in cash consideration for each Vista share they hold, plus a share of Vista’s outdoor sporting products division, now called 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).

Vista still needs to respond to MNC’s revised bid. On June 10, it rejected its bid of $39.50 a share from June 6 largely because Vista saw it undervaluing the Revelyst business.

Among analysts covering the stock, B. Riley’s Anna Glaessgen felt MNC’s upgraded bid could finally lead Vista’s board to favor partnering with MNC over the CSG transaction. The analyst reiterated her “Buy” rating at a $43 price target.

“While bulls may see long-term value well beyond the $40s, we believe shareholder pressure to accept the whole takeout offer could meaningfully increase now that the price has surpassed the $40 mark,” wrote Glaessgen. “As a result, we feel increased confidence in the likelihood of shares approaching our $43 price target considering the two options: (1) VSTO is taken out at $42 or (2) VSTO proceeds with the sale to CSG, which would indicate they have clear visibility/confidence in progress toward med/long-term financial projections supporting a value above $42.”

Glaessgen also wrote that potentially favoring an MNC takeout was a report from Politico on Tuesday, June 25, that the CSG purchase was receiving close attention from the Justice Department’s antitrust lawyers, with the Biden administration making antitrust enforcement a “cornerstone of its economic policy.” The report cited concerns from law enforcement groups that the CSG deal would “lock up the U.S. market for primer” with CSG also owning Italian primer maker Fiocchi. Sources told Politico that the DOJ’s antitrust inquiry is in the early stages, and it’s uncertain whether a formal probe of the deal would arrive.

In her note, Glaessgen wrote, “If an investigation were opened with the potential to push the expected close date into late 2024/25, we believe shareholder pressure to accept the $42/share bid could meaningfully increase.”

Jim Chartier, who covers Vista Outdoor for Monness, Crespi, Hardt & Co, was more skeptical that the CSG would be abandoned.

Chartier’s note highlighted that Vista had rejected MNC’s previous $39.50 offer because its board determined that the price undervalued the Revelyst business and MNC’s financing was contingent on additional due diligence. At Vista’s closing price of $33.78 on Tuesday, June 25, he estimated Revelyst is being valued at 6.6 times his EBITDA estimate and 5.1 times his FY26 forecast. He also said in a recent investor slide presentation that Vista estimated the fair value for the entire company to be $46 to $57 per share, well above MNC’s $42 bid.

Chartier reiterated his “Buy” rating on Vista at a $41 price target.

Matt Koranda, an analyst at Roth MKM, did not put out a note following the raised MNC offer but reiterated his “Buy” rating on Vista at a $40 price target following news of CFIUS clearance. Koranda believes the approval “locks in more certainty around the valuation” of the Kinetic business, adding that CFIUS approval “was the most difficult element of this deal to handicap, in our view.”

Koranda is confident that the “final key milestone” is the shareholder vote that, at the time, was scheduled for July 2. He expected shareholder approval of the CSG transaction, given that the deal now offers $18 in cash to Vista investors, up from the initial cash payout of $12.90 a share. CSG increased its offer three times since making its initial bid last October amid bidding from other parties.

Koranda added that given major proxy advisory services have either recommended shareholders vote “for” the CSG transaction or “abstain” from voting pending CFIUS approval that’s now been received, “we aren’t expecting any major negative surprises.”

Nonetheless, Koranda noted that the “most significant question mark” around the approval of the CSG transaction is whether the DOJ revisits the antitrust implications of the CSG sale, as detailed in the Politico article. He is skeptical a revue would happen based on Politico’s coverage. “We find the article to be light on credible sources, and the timing of a review seems questionable to us, given the Hart Scott Rodino waiting period expired in December 2023, with no objections raised by the FTC or DOJ (although we’ll note that we are not lawyers or antitrust experts),” said Koranda.

Koranda added that the “remaining x-factor could be a last-minute bid for the entire business by a domestic player” that he described would be “likely positive for the stock.”

The bidding wars have been a boon for Vista shareholders. The stock’s close of $36.86 on Wednesday, June 26, represents a 23 percent gain since MNC made its initial offer on February 27. MNC further said its revised $42 offer now represents a premium of over 40 percent to the last closing price before its initial offer.

Colt CZ Group also made a bid to buy the entire company last November, which Vista rejected. A bid by JDH Capital, which had acquired Savage Arms from Vista in July 2019 and acquired Sierra Bullets and Barnes Bullets from Clarus this past April, for the ammunition business earlier this month, was withdrawn reportedly due to conflicts of interest with MNC.