Vista Outdoor gains after Colt proposes business combination (NYSE:VSTO)

Update 12:30pm on 11/23: Adds Vista Outdoor comment.

Vista Outdoor (NYSE:VSTO) rose 3% in after hours trading after Colt CZ Group proposed a business compation that would value Vista at $30 a share.

Vista Outdoor holder Colt’s plan includes a $900 million buyback that would be executed post-closing, funded by $600 million of new equity issued at the transaction price and an incremental $300 million of debt, according to a letter Colt wrote to Vista’s board on Wednesday. Colt has a 5.7% stake in Vista, according to its latest 13D filing.

The offer from Colt comes after Vista Outdoor (VSTO) disclosed in October that it struck a deal to sell its sporting products business to Czechoslovak Group for an enterprise value of $1.91B in an all-cash transaction. The news sent Vista’s shares pluning 24% on Oct. 16, when the deal was announced, which followed Vista’s original announcement in May 2022 that it planned to split the company into separate entities.

“We would keep the company together, allowing continued upside for current Vista shareholders with the “New Vista” retaining its listing in the U.S..” Jan Drahota, CEO of Colt wrote in the letter. “The market’s view of the Czechoslovak Group transaction was clear in its reaction to the announcement, which resulted in the rapid fall in share price on October 16, 2023. It is apparent to Colt CZ that, with the separation of the Sporting Products segment, the remaining Outdoor Products segment will be subscale as a standalone public company with substantial risk.”

Vista’s (VSTO) board hasn’t made any determination with respect to the Colt proposal within the framework contemplated by the existing merger agreement with CSG, which remains in effect, nor has it changed its recommendation in support of the acquisition of its Sporting Products business by CSG, Vista said in a statement late Wednesday. The board will “carefully” review the Colt proposal.

Under the Colt proposal, Vista (VSTO) holders would own about 55% of new Vista post-closing, according to the letter. The new company would have post transaction net leverage of about 1.8x LFY adjusted EBITDA.

“Your shareholders also have concerns about the Sporting Products transaction,” Colt’s Drahota wrote in the letter. “This deal poses regulatory risks and prolongs the time it will take to separate the businesses. Separation expenses have already exceeded $50 million and this process has created significant distraction and turnover that needs to be addressed.”

Vista Outdoor (VSTO) didn’t immediately respond to Seeking Alpha email request for comment.

Vista Outdoor (VSTO) is scheduled to present at the Morgan Stanley Global Consumer and Retail Conference on Dec. 6 and the ROTH MKM 12^th Annual Deer Valley Event on Dec. 14.

Morgan Stanley is acting as sole financial adviser to Vista Outdoor (VSTO) and Cravath, Swaine & Moore LLP is acting as legal adviser to Vista. Moelis & Co. is acting as sole financial adviser to the independent directors of Vista and Gibson, Dunn & Crutcher LLP is acting as legal adviser to the independent directors of Vista/