Vista Outdoor Inc. announces increased purchase price for The Kinetic Group and enhanced cash consideration for stockholders
Vista Outdoor Inc. (NYSE: VSTO) has announced a significant amendment to its merger agreement with Czechoslovak Group a.s. (CSG). The amendment raises the purchase price for The Kinetic Group business by $100 million, bringing the total to $2.1 billion. In addition, the cash consideration for Vista Outdoor stockholders has been increased by $3.00 per share, now amounting to $21.00 in cash per share.
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Unanimous board approval
The Vista Outdoor Board of Directors is unwavering in its commitment to maximizing stockholder value. The Board has unanimously reaffirmed its recommendation that stockholders vote in favor of the CSG Transaction, highlighting it as the most compelling option available.
Key benefits of the CSG transaction
1. Enhanced stockholder value: The $2.1 billion purchase price by CSG offers $7-$16 more per share compared to MNC’s final offer, significantly enhancing value for stockholders.
2. Separation benefits and upside potential: Vista Outdoor stockholders will lock in the value of The Kinetic Group while also participating in the projected growth of Revelyst. This allows stockholders to potentially benefit from future changes in control premiums for Revelyst.
3. Certainty and timely closing: With all necessary regulatory approvals secured, Vista Outdoor and CSG are prepared to close the transaction in July 2024, contingent upon stockholder approval and customary closing conditions.
4. Competitive and exhaustive process: The CSG Transaction resulted from an exhaustive multi-stage competitive process involving outreach to 26 potential buyers, ensuring the best possible outcome for stockholders.
5. Fair consideration: At the closing of the CSG Transaction, Vista Outdoor stockholders will receive one share of Revelyst common stock and $21.00 in cash per share of Vista Outdoor common stock. This structure crystallizes significant value and mitigates future market risks.
Future prospects for Revelyst
As an independent, publicly traded company, Revelyst will be well-positioned to capitalize on its market opportunities. With approximately $250 million in net cash, Revelyst’s new management will focus on strategic capital allocation to drive growth. Vista Outdoor anticipates doubling standalone Revelyst EBITDA by fiscal year 2025, with clear pathways to achieving over $100 million in run-rate cost savings by fiscal year 2027 and long-term mid-teens EBITDA margins.
Special stockholders meeting
Vista Outdoor has scheduled a special meeting of stockholders to vote on the CSG merger agreement. This virtual meeting will take place on July 23, 2024, at 9:00 a.m. Central Time.
Rejection of MNC’s final offer
Vista Outdoor has also unanimously rejected MNC Capital’s (MNC) final proposal, which offered an all-cash transaction at $42.00 per share. The Board determined that MNC’s offer significantly undervalued Vista Outdoor, particularly the Revelyst business. Despite extensive engagement with MNC, the Board concluded that the CSG Transaction provides superior value and certainty for stockholders.
Highlights of the MNC offer rejection
1. Inferior value proposition: MNC’s proposal relies on Vista Outdoor’s own cash generation and offers inferior value compared to the improved terms of the CSG Transaction.
2. Undervaluation of Revelyst: MNC’s offer fails to recognize the significant projected EBITDA growth at Revelyst under new management, thus undervaluing the business’s future potential.
3. Prolonged closing timeline: MNC’s transaction would require multiple months to close, involving new debt and equity partners and additional due diligence.
4. Opportunistic approach: The Board believes MNC is attempting to capture Revelyst’s future upside at a significant discount outside a formal sale process.
Advisory Opinions
In the context of the proposed CSG Transaction and the subsequent rejection of MNC Capital’s offer, the role of financial and legal advisors has been crucial in guiding Vista Outdoor Inc.'s Board of Directors. The Board sought expert opinions to ensure that the decisions made were in the best interest of the stockholders.
1. Financial advisory opinions:
Morgan Stanley & Co. LLC: Acting as the sole financial advisor to Vista Outdoor, Morgan Stanley provided a thorough analysis of both the CSG Transaction and the MNC offer. Their role involved:
- Valuation analysis: Morgan Stanley conducted detailed financial modeling to assess the fair value of The Kinetic Group and Revelyst. They compared the $2.1 billion purchase price offered by CSG against industry benchmarks and the intrinsic value of the assets.
- Comparative analysis: They evaluated the relative merits of the CSG offer versus the $42.00 per share all-cash proposal from MNC. This included analyzing the long-term value creation potential of retaining Revelyst under Vista Outdoor’s control.
- Fairness opinion: Morgan Stanley provided an official fairness opinion, affirming that the consideration Vista Outdoor stockholders would receive from the CSG Transaction is fair from a financial perspective.
Moelis & Company LLC: Serving as the financial advisor to the independent directors of Vista Outdoor, Moelis & Company’s responsibilities included:
- Independent assessment: Moelis conducted an independent review of both transaction proposals to provide an unbiased perspective to the independent directors.
- Scenario analysis: They examined various strategic alternatives and potential market reactions to both the CSG and MNC offers.
- Advisory role: Moelis assisted in communicating the financial rationale behind the rejection of the MNC offer and supported the Board in negotiations with CSG.
2. Legal advisory opinions:
Cravath, Swaine & Moore LLP: As legal advisors to Vista Outdoor, Cravath provided comprehensive legal guidance throughout the transaction process, including:
- Regulatory compliance: Ensuring that all aspects of the CSG Transaction complied with relevant securities laws and regulations.
- Contractual review: Cravath reviewed and amended the merger agreement with CSG, focusing on protecting stockholder interests and minimizing potential legal risks.
- Strategic advice: Offering legal strategies for rejecting the MNC offer and handling potential litigation or disputes that might arise from this decision.
Gibson, Dunn & Crutcher LLP: Advising the independent directors, Gibson Dunn’s role included:
- Conflict of interest management: Ensuring that the independent directors had access to unbiased legal advice, particularly in scenarios where conflicts of interest might arise.
- Due diligence support: Assisting in the legal due diligence process for both the CSG Transaction and the MNC offer.
- Opinion letters: Providing legal opinion letters that articulated the legal rationale for rejecting the MNC offer based on fiduciary duty and financial inadequacy.
Detailed evaluation of the MNC Offer
Financial inadequacy:
Both Morgan Stanley and Moelis & Company concluded that the $42.00 per share offer from MNC undervalued Vista Outdoor, particularly when considering the future growth prospects of Revelyst. The advisors highlighted that:
- Cash generation dependency: MNC’s proposal relied heavily on Vista Outdoor’s own cash flow generation capabilities, essentially using the company’s resources to fund the acquisition.
- Long-Term growth overlooked: The offer did not adequately account for the expected EBITDA expansion and strategic initiatives planned for Revelyst, which were projected to drive significant future value.
Timing and certainty of closing:
The advisors emphasized the superior certainty and timing associated with the CSG Transaction:
- Regulatory approvals secured: With all necessary regulatory approvals already in place, the CSG Transaction presented a clear and expedited path to closure.
- MNC’s Financing Concerns: The MNC offer involved complex financing arrangements, including new debt and equity partners, which introduced additional risk and potential delays.
Strategic misalignment:
The Board, guided by their advisors, recognized that MNC’s approach was opportunistic and aimed at capturing the value of Revelyst at a discount:
- Undervaluation of Revelyst: MNC failed to recognize the significant upside potential and strategic value of Revelyst, which could be better realized as an independent entity.
- Market Reaction Risk: Accepting MNC’s offer could potentially undermine stockholder value by failing to capture the full market potential of Revelyst’s future growth.
Conclusion
The comprehensive advisory opinions provided by Morgan Stanley, Moelis & Company, Cravath, Swaine & Moore LLP, and Gibson, Dunn & Crutcher LLP played a critical role in guiding Vista Outdoor’s Board of Directors. The unanimous decision to proceed with the CSG Transaction and reject the MNC offer was rooted in a deep commitment to maximizing stockholder value, strategic growth prospects, and ensuring the long-term success of both The Kinetic Group and Revelyst.