Alliant, Orbital, and Vista — The Next Great Special Situation

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Alliant Techsystems Inc. (NYSE: ATK) has come closer to being considered a special situation investments. The largest ammunition manufacturer in America has now filed with the Securities and Exchange Commission to create its new company, Vista Outdoor Inc. The new company will design, manufacture, and market consumer products in the growing outdoor sports and recreation market, and it will trade on the New York Stock Exchange under the ticker symbol VSTO.

What makes this plan so interesting is that Alliant had been making acquisitions to diversify its business so as not be so focused on military and law enforcement orders. Then came the announcement earlier in 2014 that it was merging with Orbital Science Corp. (NYSE: ORB) to form Orbital ATK, Inc., to be followed with a spinoff of its sporting and recreation company.

In terms of how this new transaction will be executed, Alliant plans to distribute all new shares of Vista’s common stock to stockholders of ATK. The company hired Morgan Stanley and Bank of America Merrill Lynch to act as financial advisors to make the distribution go smoothly as a tax-free distribution.

After this spinoff, Alliant also plans a tax-free, all-stock merger between its aerospace and defense groups and Orbital Sciences Corporation. This decision ultimately comes down to the stockholders of both Orbital and Alliant if they first approve the merger and then approve the issuance of Alliant shares.

Vista Outdoor will be headquartered in Utah and have a portfolio of more than 30 recognized brands. This new company’s fiscal year (March) 2014 pro forma revenue was $2.3 billion . The company will have approximately 5,800 employees across the United States and internationally. Some of those well-known brands include Federal Premium, Savage Arms, BLACKHAWK!, Uncle Mike’s, Alliant Powder, CCI, Speer, Champion Targets, Gold Tip Arrows, Weaver Optics, Bolle, and Serengeti.

As far as how all of this compares to an un-split Alliant, ATK’s full 2014 fiscal revenue was $4.775 billion. Orbital has a calendar year-end rather than ATK’s March year-end, and its 2013 revenue was $1.365 billion. ATK’s current market cap is $4.12 billion, and Orbital’s market cap is $1.58 billion.

The structure of the Oldco versus the Newco may seem complicated on the surface, but it was spelled out rather clearly in Orbital’s presentation earlier in the summer. Current Alliant shareholders will own 53.8% of the ownership of the new Orbital ATK. That leaves prior Orbital shareholders with the other 46.2% ownership of the new Orbital ATK. Also, the existing Alliant holders will receive 100% of the new Vista Outdoor shares, but prior Orbital holders only get the Orbital ATK shares.

Credit Suisse previously named ATK as one of its top mid-cap ideas for the rest of 2014. The new Orbital ATK will focus on government and commercial customers. It will consist of launch vehicles, propulsion systems and aerostructures, satellites, advanced systems, space components, and technical services. Also, the company will sell tactical missiles, defense electronics, armament systems, and of course, what it is perhaps best known for — ammunition.

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Alliant Techsystems’ shares were up almost 1% at $129.00 in midday trading on Thursday, against a 52-week range of $94.25 to $158.13. The consensus analyst price target is close to $154.00. ATK is also valued at close to 12-times next year’s expected earnings.

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