Another large Vista Outdoor shareholder announced Wednesday that they do not support the sale of the company’s ammunition business to Czechoslovak Group (CSG).
Gates Capital, which owns 5,589,041 shares (or 9.6%) of Outdoor Vista, said in a letter to the board of directors that the proposed $2.1 billion price for The Kinetic Group is too low. It urged the board to continue negotiating with MNC Capital, which offered $42 per share for the company in a separate offer.
Pressure is mounting on Vista’s board to reject the proposal, which it voted unanimously in favor of in early July. TIG Advisors, an institutional investor with 532,000 shares of Vista Outdoor, also said Friday that it would vote against the proposal. Institutional Shareholder Services (ISS), an independent proxy advisory firm that advises large shareholders, also recommended shareholders vote against the sale of the ammo business to CSG.
It’s not clear if the shareholder vote scheduled for next week will move ahead.
Read The Daily’s primer about the Vista Outdoor sale saga here.
Sale “Not in the Best Interest of Vista Shareholders”
Jeff Gates, the managing partner of Gates Capital, noted in his letter to Vista’s board that The Kinetic Group, the ammunition arm of Vista Outdoors, has generated an average of approximately $400 million per year in free cash flow over the past four years.
“Additionally, the current proposal retires $500 million of inexpensive 4.5% coupon debt well ahead of its 2029 maturity.” said the letter. “This early debt retirement transfers more than $1.50 per share of value from Vista shareholders to bondholders, which we find unacceptable. In the event of a higher bid by CSG, we believe Vista’s plan to keep $250 million of cash at Revelyst after the sale is not in the best interest of Vista shareholders and the amount should be reduced to $50 million with the additional $200 million being returned to Company shareholders.”
Gates said the $42 per share offer from MNC Capital, which the board earlier rejected, was a “reasonable starting point” to negotiate from.
“Both the CSG transaction and MNC proposal are fully taxable, but only the MNC proposal would deliver the certainty of an all-cash payment at closing,” Gates said.
Gates would support Vista’s original plan of a tax-free spin-off, which would create two standalone public companies.
“This plan could include $50 million of cash allocated to Revelyst and a commitment from The Kinetic Group to pay out at least 75% of its free cash flow in dividends and share repurchases annually,” Gates said.
“We believe this decision would provide an excellent opportunity for both businesses to deliver strong shareholder returns over time.”
