More On CSG Plan To Purchase Kinetic Group

I have a number of posts up on the plans of the Czechoslovak Group (CSG) to purchase the ammunition producing portion of Vista Outdoor (Kinetic Group) as well as on a competing bid. In today’s Outdoor Wire, Jim Shepherd has a very interesting post about behind-the-scenes moves to sabotage the CSG acquisition of The Kinetic Group.

Yesterday, a pair of letters from CSG’s top management to a United States Senator and the CEO of the National Sheriffs Association seem to indicate there’s been a sophisticated PR campaign being waged against the CSG/Kinetic deal.

The letters address misconceptions, if not outright falsehoods, regarding the deal. They also raise another unanswered question: who’s trying to stop this deal?

Some Wall Street observers are saying- not for attribution- they suspect CSG’s being forced to address a disinformation campaign designed to drive the Vista Board of Directors to a possible alternative deal from MNC Capital Partners.

The US Senator is Sen. J. D. Vance (R-OH). In a letter to Treasury Secretary Janet Yellen dated January 24th, Vance asserts in the letter that he has reservations about the CSG purchase of the Kinetic Group due to CSG’s “alleged ties to the inner circle of Russian President Vladimir Putin.” These alleged ties are not connected to CSG’s ammunition business but rather its Tatra heavy truck component.

CSG CEO and owner Michal Strnad addressed these concerns in a letter to Sen. Vance yesterday.

He said, in part:

Senator, with all due respect, your assessment of us was profoundly mistaken. CSG is one of the most important private supporters of the Ukrainian military effort, a country to which we have supplied much-needed weapon systems dating back to 2018, well before the outbreak of open Russian aggression. Since the Russian army’s attack on Ukraine, we have supplied the Ukrainian Army – with the help of the government of the Czech Republic and other NATO countries, including the U.S. – over a hundred pieces of heavy equipment and, most importantly, hundreds of thousands of pieces of artillery ammunition, of which we are one of the most important European manufacturers….

any speculation about the CSG’s connection to the Putin regime should be considered nonsense. We nevertheless explicitly note that CSG has never had any ties to Putin’s regime and there is no reason why we would have such ties, given that we have never supplied any defense products to Russia. Past export of our civilian products – namely trucks for the mining industry – was negligible, and after the outbreak of Russian aggression against Ukraine, it was unilaterally terminated by us. CSG has also never violated any arms embargo and has never been investigated for doing so, let alone sanctioned.

We understand that the sale of major producers of small caliber ammunition to a foreign company, even if it is a company from a NATO member state that is a close ally of the U.S., attracts well-deserved attention. In today’s global world, however, it is not important which allied country the buying company is based, but what its track record is and what value it can bring to the American ammunition manufacturers associated in The Kinetic Group.

It now appears that Sen. John Kennedy (R-LA) who usually is more thoughtful is jumping on the anti-CSG bandwagon. Yesterday, he sent a letter to Sec. Yellen questioning whether CSG had ties to China and added his concerns about a foreign company controlling so much of the market for primers. He goes on to add that this sale of the Kinetic Group to CSG could make Olin’s Winchester as the sole source supplier to run the Army’s Lake City Ammunition Plant.

I’m with Jim Shepherd on this. There seems to be a concerted effort to torpedo the CSG purchase of the Kinetic Group and you have to wonder why. The Czechs have become valued Nato partners and have great reason to hate the Russians. Moreover, there is little publicly available information about MNC who is the other suitor for the Kinetic Group.

A New Bidder For Vista Outdoor

Vista Outdoor has recently received an enhanced buyout bid from MNC Capital Partners, L.P. The new bid is offering $37.50 per share for the entire company.

From their news release:

MNC’s $37.50 per share proposal values Revelyst at $1.1 billion, a 93% premium to Vista’s own $570 million implied Revelyst standalone value from its Investor Presentation dated February 1, 2024.

A transaction with MNC would not be subject to a financing contingency and would not be subject to CFIUS review. MNC has provided the details of its financing to Vista, as well as all other information that Vista requested in its March 4, 2024 letter.

Vista Outdoor has a pre-existing agreement to sell The Kinetic Group or its sporting products component to the Czechoslovak Group (CSG) for $1.9 billion. It has planned to keep the remaining outdoor products component known as Revelyst as a stand-alone company. CSG owns a number of other ammunition companies including Fiochi which has a plant in Ozark, Missouri.

Vista Outdoor had rejected an earlier offer made in February from MNC Capital saying that they were staying with the planned sale to CSG as well as their plans to run Revelyst as a stand-alone company.

With respect to the new enhanced offer, Vista Outdoor released this statement:

Vista Outdoor’s Board has not made any determination with respect to the Revised MNC Indication within the framework contemplated by the existing merger agreement with Czechoslovak Group a.s. (“CSG”), which remains in effect, nor has it changed its recommendation in support of the acquisition of its Sporting Products business by CSG.

Vista Outdoor’s Board of Directors is carefully reviewing the Revised MNC Indication, in accordance with its fiduciary duties and its obligations under the existing merger agreement with CSG, in consultation with its financial and legal advisors. Vista Outdoor’s Board of Directors remains committed to acting in the best interests of Vista Outdoor stockholders.

In related news, Colt CZ announced that it had sold all of its holdings of Vista Outdoor stock after their bid to purchase the entire company was rejected. They plan to focus on their pending purchase of ammunition maker Sellier & Bellot.

Vista Outdoor (VSTO) stock closed today at $32.83 or a little less than $5 less per share than the offer from MNC Capital Partners. I should note that I do not currently own any shares of Vista Outdoor.

Czechs Making Moves In The Firearms Industry

Companies in the Czech Republic certainly have been making some moves in the last couple of months. This includes both Czechoslovak Group a.s. (CSG) and Colt CZ Groupe SE.

First was the Czechoslovak Group (CSG) agreeing to purchase Vista Outdoor’s Sporting Products group. The Sporting Products group are the ammunition, smokeless powder, and components group of Vista Outdoor. As I reported earlier, the Sporting Products groups was going to be renamed The Kinetic Group and be an independent company by the end of 2023. Then, in mid-October, Vista Outdoor changed plans and announced they agreed to sell the Sporting Products group to Czechoslovak Group (CSG) for $1.91 billion.

Last week on the 12th of December, the deal received anti-trust clearance under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. While the deal still must get other governmental approvals before it can close, this was a major hurdle.

In the interim between the announcement that Czechoslovak Groups was purchasing the Sporting Products group and the anti-trust clearance, another Czech company, Colt CZ Groupe SE, proposed a merger with Vista Outdoor for the entirety of the company. This was on November 22nd. The combined cash and stock transaction was valued at $30 per share of Vista Outdoor common stock.

Vista Outdoor’s board of directors after consulting with their financial and legal advisors rejected the unsolicited bid from Colt CZ Groupe SE on November 29th. Among the reasons for rejecting this unsolicited bid was that it undervalued Vista Outdoor, that it didn’t provide adequate detail with which to measure the $30 per share offer, and that it didn’t provide the details of the debt and equity financing needed to complete the deal nor whether any binding commitments had been obtained.

Czechoslovak Group was not finished with their acquisitions. On Friday, December 15th, they announced they had purchased a majority stake in family-owned fine shotgun makers Armi Perazzi S.p.A. While terms were not announced, CSG will own 80% of the company while the Perazzi siblings will retain 20%. The company will continue to be managed by the Perazzi family and the current management team.

Michal Strnad, owner and CEO of CSG, said on the acquistion:

Armi Perazzi is a prestigious brand in the field of firearms for sport shooters and elite hunters. At the same time, it is a stable and prosperous company that the Perazzi family excellently manages. The motivation for this acquisition is not only financial but also to strengthen CSG’s international prestige and reputation as a global and innovative industrial group expanding in Europe and the USA.

Today, Colt CZ Group SE announced that they had agreed to purchase 100% of Czech ammunition company Sellier & Bellot in a combined cash and stock transaction from CBC Europe S.à r.l. (“CBC”). In addition to $350 million in cash, CBC will get approximately 27-28% of new issue Colt CZ common stock. Colt CZ with use existing cash and debt financing for the transaction which will close in the first half of 2024.

Jan Drahota, CEO of Colt CZ, had this to say on the acquistion:

“We are proud to welcome one of the oldest and most important producers of small caliber ammunition, Sellier & Bellot, to Colt CZ Group. This acquisition fits into our long-term strategy to expand not only in our core segment of small arms, but also in related areas, with ammunition being a natural complement to our products. 

CBC Global Ammunition, in addition to Sellier & Bellot, owns Magtech, CBC Brazil, and MEN Germany. Magtech will continue to serve as the US distributor for Sellier & Bellot after the sale to Colt CZ. Fabio Mazzaro, CFO for CBC Global Ammunition, calls this the “starting point of an impactful strategic collaboration.” He went on to add that they were convinced of Colt CZ’s long term vision and that this transaction will lead to “remarkable value creation between the ammunition and firearms segments.

To sum up, Czechoslovak Group (CSG) will be acquiring both Vista Outdoor’s Sporting Products group and a majority stake in Perazzi shotguns. Meanwhile, Colt CZ Groupe will be buying Czech ammunition maker Sellier & Bellot.