May 1, 2018 / 8:53 PM / 4 months ago

Breakingviews - Cox: Gun taint prods a corporate restructuring

NEW YORK (Reuters Breakingviews) - Three years ago, Vista Outdoor was brought to life in that manner by which corporations reproduce: a tax-free spinoff to shareholders. Alliant Techsystems, a defense business, set Vista free to be “a standalone, publicly traded outdoor sports and recreation company.” That was a euphemistic way to say Vista sells guns like the AR-15 semi-automatic assault-style rifles used in the mass-shootings that have become all too common in the United States.

AR-15 rifles are displayed for sale at the Guntoberfest gun show in Oaks, Pennsylvania, U.S., October 6, 2017. REUTERS/Joshua Roberts

Vista’s independence came before a difficult moment for the American consumer-arms business. A bubble in gun sales during Barack Obama’s presidency came to a halt upon the election of Donald Trump, arguably the cuddliest friend the National Rifle Association has had in the White House since that lobbying organization was formed after the Civil War (initially to improve the marksmanship of young men).

Perhaps sensing a coming end of a boom in ironmongery, Vista set out to diversify away from shooting sports to other kinds of outdoor activities. As its stock rose from $34 around its debut to as high as $51 in the early months of 2016, Vista embarked on a hunting expedition.

Among its purchases were Jimmy Styks, a maker of paddleboards and paddles, and CamelBak, the Chanel of personal hydration systems. It also acquired a company specializing in helmets for skiing and mountain-bike riding, including the Bell and Giro brands, and Camp Chef, whose portable grills are the silver-standard for tailgating parties.

Then along came Parkland, the town in Florida where a young man armed with an AR-15 massacred 17 students and teachers in a high school. Suddenly, the world Vista had been preparing for was shattered. The surviving students of Marjory Stoneman Douglas High School protested America’s lax gun laws with eloquence and vigor. They brought hitherto unmatched energy and focus to questions about the easy access to weapons like those Vista manufactures.

For the first time, banks, big businesses and investors woke up to their own financial and reputational exposure to gunmakers. So did retailers, and not just the gun sellers like Dick’s Sporting Goods and Walmart. On the first of March, a few weeks after the Parkland shooting and ahead of a nationwide protest and Washington march in favor of stronger gun regulations, one of the leading purveyors of Vista’s non-lethal products, REI, placed a hold on Vista orders.

“Companies are showing they can contribute if they are willing to lead. We encourage Vista to do just that,” REI said in a statement. Now Vista is doing just that, sort of. The company announced plans to jettison things in its portfolio not related to its target consumer, which it defines as “the outdoor enthusiast.”

That means ammunition and hunting and shooting accessories are in, though AR-15s may not be: its Savage firearms brand is on the block. So are bike helmets and paddles. “An increased focus on our heritage ammunition business will manifest itself in more innovative and breakthrough new products,” Vista said on Tuesday. For the sake of its other businesses, that may make sense.

Shareholders feel differently and took 13 percent off the company’s market value. They appeared to like the idea of diversifying away from shooting. Looking at Vista’s most recent fiscal quarter, it’s easy to see why. Sales fell 3 percent in its shooting-sports business and rose around 1 percent in the outdoor-products category, minimizing the overall decline, to $571 million, from a year earlier.

“Against this decision, the bigger question in our view becomes potential multiple rerating as the business is likely left with 80-percent plus portfolio exposure to the firearms industry in some form,” wrote KeyBanc Capital Markets analyst Brett Andress. What he means, in ordinary English, is that investors likely won’t value the remaining stuff very highly.

For Vista, based in Farmington, Utah, the retreat is being spun as a way “to drive a founder’s mentality back into our brands.” That may be true. But it is also another example of how products that are used to kill people are being confined to the fringes of finance – where they belong.    

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