There'll probably be a movie made about Vista Outdoors' sale of Kinetic Group. No one at Anoka-based Vista expected it would take more than two years to sell its firearms and ammunition business, which includes well-known brands like Federal and Remington.
Now, with cameos from spotlight-hungry Washington politicians, the climactic final scene is about to unfold.
On Monday, Vista announced that a third potential bidder for the business had withdrawn due to a conflict of interest with another buyer. The next two weeks will tell whether the two candidates, both Texas investor groups, will work together on a joint bid or some other solution.
If not, Vista shareholders are likely to accept the board's recommendation on July 2 to sell the company to Czechoslovak Group (CSG) for about $2 billion in cash. CSG was founded in the 1990s to sell surplus military equipment and scrap metal as the Czech Republic was emerging from Soviet rule. Today, it mainly makes ammunition and is a major supplier to Ukraine in its war with Russia.
Part of the drama stems from the political element that has been introduced into the sale during a presidential election year, with politicians saying they are concerned about foreign ownership of the U.S. arms business.
Similar concerns have been raised about the possible sale of U.S. Steel, which has a large presence on Minnesota's Iron Range, to Japan's Nippon Steel Corp.
In both cases, the finger-pointing and excessive rhetoric targeting CSG and Nippon Steel has generated more heat than light. Both companies already operate in the U.S. and employ Americans. Both have been transparent about their financial situations to shareholders and regulators.
Both will be tests of the Biden administration's approach to business. They are being reviewed by the Committee on Foreign Investment in the United States, a Cabinet-level panel that operates in a somewhat vague manner because it determines only whether a deal might harm national security.
Both President Joe Biden and former President Donald Trump oppose the sale of U.S. Steel to Japan, although neither has cited national security concerns, and Japan is, of course, one of America's closest allies.
Instead, they are using patriotic rhetoric to secure votes from people who work in or near the industry. The United Steelworkers opposes the sale to Nippon Steel and supports Cleveland-Cliffs' proposed acquisition by U.S. Steel. Minnesota steelworkers also support Cleveland-Cliffs, which would give the company control over the ranches on a scale not seen since John D. Rockefeller drove out the first mining families in the 1890s.
Workers always want assurances that their jobs will be preserved under new ownership, and while Nippon Steel has offered those assurances, the steelworkers union believes Cleveland-Cliffs offers a better chance of preserving jobs. In selling Kinetic, CSG also said it would retain the management and employees of Kinetic's various businesses.
As anyone in business knows, these guarantees have limitations: hiring needs are likely to change as business and economic cycles fluctuate.
I believe the root of these “foreign made” concerns lies in the cost and structure of each deal. CSG and Nippon Steel have offered to pay all in cash to acquire U.S. companies, and are urging other would-be buyers to do the same.
Clouding shareholder and public perceptions with nationalistic rhetoric may ease the pressure on competing bidders, and in the process, shareholders may end up with an inferior deal.
Earlier this year, Republicans led by Sen. J.D. Vance of Ohio began trying to block CSG's acquisition of Kinetic. He said he was not concerned about the size of the deal or its impact on the U.S. firearms and ammunition market. He cited reports that CSG had indirectly shipped trucks to Azerbaijan nearly a decade ago, a country under a self-imposed arms embargo by European countries.
Vance also alleged that CSG has ties to Russian Prime Minister Vladimir Putin, a claim that CSG executives have denied in numerous statements.
Last weekend, CSG's billionaire owner, Michal Strnad, suggested politics were behind the Republican criticism in an interview with the Financial Times. “I understand that politicians like to make stories that get media attention, regardless of their seriousness or relevance to their business,” Strnad said.
Late last month, shareholder advisory firm Institutional Shareholder Services approved Vista's sale of Kinetic to CSG.
ISS noted that Vista had approached more than 25 potential buyers, received five offers and increased the purchase price several times. The company said the “cash consideration provides certainty in the value of the Kinetic business.”
