Gates Capital Management Opposes Vista Outdoor’s Proposed Sale Of The Kinetic Group To CSG
$VSTO
Sends Letter to Vista Board of Directors Outlining Why Tax Free Spin-Off or
Cash Offer for the Entire Company Are Superior to the Proposed Sale of The Kinetic Group
July 17, 2024
Vista Outdoor Inc.
Attn: Board of Directors
1 Vista Way
Anoka, Minnesota 55303
Dear Members of the Board,
Gates Capital Management is one of the largest shareholders of Vista, beneficially owning 5,589,041 shares, or approximately 9.6%, of the Company. We are writing to the Board to express our concerns regarding the pending sale of The Kinetic Group to CSG.
We strongly oppose the sale at the proposed price of $2.1 billion and believe that Vista shareholders deserve a higher price that accurately reflects The Kinetic Group’s financial strength and future potential. The Kinetic Group consistently generates substantial free cash flow, which averaged more than $400 million annually over the four years ended March 2024 (free cash flow is Operating Income plus Depreciation and Amortization, minus $20 million of annual corporate expense and $25 million of annual capital expenditures). We believe the proposed sale price does not fairly value this cash-generative asset. Additionally, the current proposal retires $500 million of inexpensive 4.5% coupon debt well ahead of its 2029 maturity. 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.
Given the inadequacy of the proposed CSG transaction, we were not surprised to see that proxy adviser Institutional Shareholder Services (ISS) recently recommended voting “AGAINST” the transaction.
Separately, we believe that the $42 per share bid from MNC Capital ("MNC") to acquire all of Vista provides a reasonable starting point for Vista to negotiate a superior transaction versus the current CSG proposal. 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.
Finally, we would support Vista's original plan of a tax-free spin-off, separating The Kinetic Group and Revelyst into 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. We believe this decision would provide an excellent opportunity for both businesses to deliver strong shareholder returns over time.
We urge the Board to reconsider its currently proposed transaction and to act in the best interests of all shareholders by either securing a materially higher price for the Kinetic Group, engaging with MNC to sell the entire Company, or reverting to Vista's original spin-off plan.
Sincerely,
Jeff Gates
Managing Partner
Gates Capital Management
Source:
https://www.sec.gov/Archives/edgar/data/1312908/000090266424004741/p24-2379sc13d.htm