spinoffs Archives -

Vista Outdoor Ditching Guns In “Strategic Business Transformation Plan”

Vista Outdoor announced plans today to sell off its Savage and Stevens line of firearms along with stuff like bike helmets and paddle boards. According to the announcement on their website, they are engaging in a strategic business transformation plan to emphasize products core to business. This will include their ammunition business which is their largest core business.

From their release, in part:

Vista Outdoor Inc. (NYSE: VSTO) today announced its strategic business transformation plan, designed to allow the company to focus resources on pursuing growth in its core product categories. The plan is a result of a comprehensive strategic review, which began in November 2017.

“Our review identified product categories that are core to the company’s long-term business strategy,” said Vista Outdoor Chief Executive Officer Chris Metz. “We believe future investment should focus on categories where Vista Outdoor can achieve sustainable growth, maximize operational efficiencies, deliver leadership economics, and drive shareholder value.”

In conducting the strategic review, Vista Outdoor management defined several criteria to evaluate whether individual product categories are part of the company’s core. Vista Outdoor evaluated brands within its current portfolio based on their ability to do the following:

Serve the company’s target consumer – the outdoor enthusiast

Create cross-selling and other similar synergy opportunities

Achieve market leading positions and leadership economics

Demonstrate omni-channel distribution capabilities

As a result of this evaluation, and with support from its board of directors, Vista Outdoor will focus on achieving growth through its market-leading brands in ammunition, hunting and shooting accessories, hydration bottles and packs, and outdoor cooking products.

“Vista Outdoor is excited about the potential of each of our core businesses, particularly ammunition, which is our largest core business.” said Metz. “An increased focus on our heritage ammunition business will manifest itself in more innovative and breakthrough new products introduced over the next few years. We also anticipate that by prioritizing this business, we will be able to invest more capital to further enhance and expand our global leadership position.”

The company plans to explore strategic options for assets that fall outside of these product categories, including its remaining Sports Protection brands (e.g. Bell, Giro, and Blackburn), Jimmy Styks paddle boards, and Savage and Stevens firearms. Vista Outdoor expects that the execution of this process will significantly reduce the company’s leverage, improve financial flexibility and the efficiency of its capital structure, and provide additional resources to reinvest in core product categories, both organically and through acquisition.

“This transformation plan is a significant first step toward creating a portfolio of brands that is laser-focused on our target consumer and leverages the strengths of our combined platform,” said Metz. “This renewed focus will allow us to invest in these categories and their natural adjacencies. Coupled with our previously announced sales and marketing reorganization to drive a founder’s mentality back into our brands, this strategic orientation will also allow us to accelerate our efforts to expand e-commerce capabilities and increase our emphasis on market-leading product innovation. The end result will be a Vista Outdoor that lives up to the potential envisioned three years ago when the company was formed. We intend to begin the portfolio reshaping immediately, and anticipate executing any strategic alternatives by the end of Fiscal Year 2020.”

Savage had only been a part of Vista Outdoor and its predecessor ATK since May 2013 when ATK bought Caliber Company.

In comments made to the Wall Street Journal, CEO Chris Metz said:

Chief Executive Chris Metz, who joined the company in October, said brands built up through a series of acquisitions by the previous management team had failed to gel, denting sales and margins over the past two years. Vista Outdoor has seen two-thirds of its market value wiped away over the past two years as industry oversupply and bankruptcies among retailers have hit the broader shooting-sports industry…

Mr. Metz said the Savage Arms business remained “close to our core,” but Vista Outdoors wasn’t prepared to make the investment needed to make it a full-service firearms maker.

He added that they were in no hurry to sell these assets. While I don’t care what they do with paddle boards or bicycle helmets, I don’t want to see a venerable firearms company which still makes an excellent product just dumped on the market. I don’t know if they can get the $315 million they paid for Savage back in 2013 but time will tell.

UPDATE: Attached are two slides from the Vista Outdoor analyst presentation today which show the before and after of the potential spin-off of Savage and the others.

BEFORE

AFTER

ATK To Merge With Orbital Sciences And Spin Off Sporting Group

ATK, formerly Alliant Techsystems, Inc., announced today that they plan to merge with Orbital Sciences in a $5 billion deal. The new company will be called Orbital ATK. As part of the merger, ATK will spin off their sporting group to shareholders as a new company.

From the Wall Street Journal:

ATK valued the all-stock combination with Orbital at $5 billion and its shareholders would retain 53.8% of the aerospace and defense business, to be known as Orbital ATK.

The proposed deal, which is expected to close by the end of 2014, would match the total level of defense M&A over the past three years combined, and puts 2014 within reach of the $9 billion in deals reached in 2008. Executives had shied away from transactions before securing more visibility of business trends from the fiscal 2014 and 2015 Pentagon budgets.

Mark DeYoung, ATK’s chief executive, would run the separated operation business which, with 2013 revenue of $2.2 billion, is less than half the size of the $4.5 billion aerospace and defense business.

Excerpts from ATK’s press release on the merger:

The company’s Sporting and A&D (aerospace and defense)businesses operate in two fundamentally different markets with very different operating dynamics, compliance requirements, customer sets and growth opportunities. As standalone companies, they will be more focused businesses, with clear and distinct strategic visions and objectives, additional operational flexibility and the financial strength to make the most of their unique opportunities in their respective industries.

Since entering the commercial ammunition and sporting accessories space in 2001, ATK has built a leading position in the shooting sports for hunters, shooting enthusiasts and law enforcement professionals. The acquisitions of Savage and Bushnell in 2013 enabled ATK to expand its core competencies while creating opportunities to enter into new, adjacent markets in the outdoor recreation industry.

In today’s growing market, the Sporting Group enjoys expanded distribution for some of the most widely known and respected brands in the industry: Federal Premium, Bushnell, Savage Arms, BLACKHAWK!, Primos, Final Approach, Uncle Mike’s, Hoppe’s, RCBS, Alliant Powder, CCI, Speer, Champion Targets, Gold Tip Arrows, Weaver Optics, Outers, Bolle, Cebe, and Serengeti.

“Sporting continues to deliver excellent performance,” said DeYoung. “Results from our recently completed fourth quarter demonstrated continued revenue and earnings growth, and margin expansion. Full details on our fourth quarter results will be discussed on our May 15 earnings call.”

ATK believes that separating Sporting into a standalone entity will facilitate opportunities to further drive growth and marshal resources to broaden and deepen its market leadership. ATK believes that a more focused corporate leadership team, operating within a clearly defined commercial market with a competitive business model, will contribute to unlocking significant value for ATK shareholders. Following the completion of the transaction, Sporting will also enjoy a strong balance sheet that will provide the ability to fund its growth strategy. Over the past 10 years, ATK’s Sporting Group has delivered annual sales growth of approximately 16 percent (14 percent organic growth).

And on the new management and location:

Upon completion of the transaction, Mr. DeYoung will serve as the Chairman and Chief Executive Officer of Sporting. Mr. DeYoung is working with ATK’s Board of Directors to develop detailed plans for an efficient and capable corporate structure with experienced management and strong governance policies and practices, as well as to establish the name and branding of Sporting. Sporting will be headquartered in Utah and is expected to employ nearly 5,800 workers in 11 states and worldwide.

And the details of the transaction which will be tax-free:

Under the terms of the transaction agreement, ATK will distribute ownership of Sporting to ATK shareholders in a spin-off transaction, following which, ATK shareholders will own 100 percent of Sporting. The spin-off will be immediately followed by a merger of Orbital with a subsidiary of ATK, with Orbital surviving the merger and becoming a wholly owned subsidiary of ATK. In connection with the merger, Orbital shareholders will receive 0.449 shares of ATK common stock for each share of Orbital common stock that they hold. Upon the closing of the merger, ATK shareholders will own approximately 53.8 percent of the combined company on a fully diluted basis and Orbital shareholders will own the remaining approximately 46.2 percent of the combined company on a fully diluted basis. As part of the transaction, Sporting has secured a $750 million senior secured financing commitment from BofA Merrill Lynch and will dividend $300-350 million of the proceeds of such new indebtedness to ATK immediately prior to the closing, which will be used by ATK to repay existing debt. Post issuing dividend to Orbital ATK, Sporting’s net debt and total debt will be equal to the dividend. At the closing, Orbital ATK is expected to have a total of approximately $1.7 billion in gross debt and $1.4 billion of net debt. The transaction is expected to be tax-free to both companies as well as to ATK and Orbital shareholders.

The transaction is expected to close by the end of calendar year 2014, and is subject to customary closing conditions including regulatory approvals and the approval of each of ATK’s and Orbital’s shareholders. ATK and Orbital will continue to operate separately until the transaction closes.

The two most interesting aspects of this whole merger is that the sporting group will be spun off and that the current ATK CEO Mark DeYoung has cast his lot with the sporting group and not the aerospace/defense groups. It says a lot for the strength of the shooting sports industry that a CEO sees his future prospects as being better there than in the defense industry.