Event-driven hedge fund firm Gates Capital Management, one of the largest shareholders of Outdoor sports and recreation brands owner Vista Outdoor, is opposing the proposed sale of the company’s shooting-related products division The Kinetic Group to Czechoslovak Group.
In a letter addressed to Vista’s Board of Directors, Gates Capital Management detailed its concerns and urged the Board to consider alternative strategies that better serve shareholders’ interests.
Gates Capital Management, which owns approximately 9.6% of Vista Outdoor with 5,589,041 shares, criticised the $2.1bn sale price, arguing that it undervalues The Kinetic Group’s financial strength and future potential. The firm highlighted that The Kinetic Group has consistently generated substantial free cash flow, averaging over $400m annually for the four years ending in March 2024.
“The proposed sale price does not fairly value this cash-generative asset,” the letter stated. Gates Capital Management also pointed out that the current proposal includes retiring $500m of 4.5% coupon debt well ahead of its 2029 maturity, effectively transferring over $1.50 per share of value from Vista shareholders to bondholders.
Additionally, Gates Capital Management expressed concern over Vista’s plan to retain $250m in cash its remaining Revelyst division after the sale. The firm suggested this amount be reduced to $50m, with the remaining $200m returned to shareholders.
In light of these issues, Gates Capital Management said it was not surprised that Institutional Shareholder Services recommended shareholders vote against the transaction.
Gates Capital Management also noted an alternative proposal from MNC Capital to acquire all of Vista at $42 per share, which it believes provides a reasonable starting point for negotiating a superior transaction compared to the current CSG proposal. The firm emphasised that the MNC proposal offers the certainty of an all-cash payment at closing, unlike the fully taxable CSG transaction.
Furthermore, Gates Capital Management expressed support for Vista’s original plan of a tax-free spin-off, which would separate The Kinetic Group and Revelyst into two standalone public companies. This plan includes allocating $50m in cash to Revelyst and committing 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,” the letter concluded.
