Please ensure Javascript is enabled for purposes of website accessibility

What Textron's Arctic Cat Acquisition Means for Their Shareholders

By Nicholas Rossolillo – Feb 7, 2017 at 7:50AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

After a long struggle on its own, Minnesota's ATV and snowmobile maker Arctic Cat will become part of the Textron empire.

Last month, Textron (TXT -1.09%) agreed to buy snowmobile maker Arctic Cat (ACAT) in an all-cash deal. Here are the details owners of the two companies need to consider.

A side view of the 2016 Arctic Cat ZR 4000 snowmobile

The Arctic Cat ZR 4000. Image source: Arctic Cat.

Betting on outdoor recreational vehicles

Textron's offer values Arctic Cat at $247 million plus the assumption of all the company's debt. Those with a stake in the winter-toy maker will receive a tender offer of $18.50 per share.

Textron CEO Scott C. Donnelly had this to say regarding the rationale behind the purchase:

Arctic Cat is a superb strategic fit for Textron. With our recent product introductions in the outdoor recreational vehicle market under the Stampede name, we believe Arctic Cat, one of the most recognized brands in the industry, provides an excellent platform to expand our portfolio, increase our distribution and create growth within our Specialized Vehicles business.

The diversified industrial holdings at Textron include a number of names in the outdoor vehicle industry including E-Z-GO, Bad Boy Off Road, and Cushman. These names, operating under the specialized vehicles division, build everything from golf carts to ATVs.

Adding the Arctic Cat name deepens the company's exposure in its existing off-road vehicle department, but also broadens its scope to include the closely related snowmobile category. Arctic Cat's lineup, technology, and dealership network will no doubt be tapped to strengthen the brands already in the fold as well.

A red Bad Boy Off Road side-by-side ATV

The Bad Boy Off Road Stampede. Image source: Bad Boy Off Road.

The deal will end the pain that owners of the Minnesota-based vehicle maker have been dealing with for the last few years. Revenue and profits have been on a steady decline, as the power-sports market copes with stagnant consumer demand and no shortage of competitors. This agreement between Textron and Arctic Cat helps consolidate the number of players in the industry, and bolsters the newly combined outdoor-vehicle division in coping with the industry's struggles.

ACAT Chart

ACAT data by YCharts.

What shareholders should do

For Textron owners, this deal isn't much of an issue. Sales in the last year were nearly $13.8 billion and cash on the balance sheet was over $1.1 billion, so the $247 million paid for Arctic Cat is a small purchase. While Arctic Cat's operations ran in the red last year, plugging the business into Textron's much bigger $3.8 billion industrials segment could help the struggling manufacturer return to profitability.

For owners of Arctic Cat stock, there are a few options. A tender offer for their shares will begin no later than Feb. 7 for the aforementioned $18.50. That offer can be accepted and shares will be exchanged for cash.

A second option is to go ahead and cash out now, as share prices of Arctic Cat have jumped above the $18.50 offer since the news broke. The risk here is that if the offer from Textron gets increased for some reason, you'd miss out on that. (As usually happens with acquisitions, several law firms have issued statements that they are investigating whether the deal is fair.)

ACAT Chart

ACAT data by YCharts

A third option, and an ill-advised one, is to continue holding Arctic Cat shares. When the tender offer is completed, your stock will be removed from stock exchanges; this means that if you need to sell, you'd need to find a private buyer and negotiate a price. There is no guarantee you would get the $18.50 currently on the table, and chances are the sum would be much less for what would then be a wholly owned subsidiary business.

In short, it's been a tough run for investors in the small snowmobile maker, but it's time to say farewell.

Nicholas Rossolillo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Textron Stock Quote
Textron
TXT
$62.63 (-1.09%) $0.69
Arctic Cat Inc. Stock Quote
Arctic Cat Inc.
ACAT

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
339%
 
S&P 500 Returns
109%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/06/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.