Salt Lake City-based Clarus has Received a $160 Million Bid to Buy the Firm's "Precision Sports Business" (aka, its Bullet Companies)

The offer to acquire Clarus' ammunition business was made on 15 September 2023 via a letter delivered by its Executive Chairman, Warren B. Kanders, to the Clarus board of directors comes "... following certain informal, exploratory discussions ..." between he and the company.

Additionally, Kanders also notified the Clarus board in the same letter that directly or indirectly he now owns/controls over 6.3 million shares of Clarus, representing ~15.4% of the company's outstanding shares.

In publicly surprising news yesterday, Salt Lake City-based Clarus Corp. (NASDAQ:CLAR) announced that it has received a $160 million "non-binding indication of interest regarding an acquisition of the Precision Sports business" owned/operated by Clarus, specifically its

• "Sierra Bullets and
• "Barnes Bullets brands."

{NOTE: Sierra is based in Missouri, while Barnes is headquartered in Mona, Utah.}

According to the Clarus news release, the offer was extended via a letter to the Clarus board of directors dated 15 September 2023 and delivered by its Executive Chairman, Warren B. Kanders.

On the same day, Kanders also filed an amendment to his Form 13D filing with the U.S. Securities and Exchange Commission formally notifying it, Clarus, and the public that he now had direct (or indirect) ownership of 6.3 million shares of Clarus common stock, giving him control of 15.4% of the outstanding shares of Clarus.

Additionally, his Form 13D/A filing also notes that Kanders' letter to the Clarus board comes "... following certain informal, exploratory discussions ..." between he and the company.

Contextually, Kanders has served as a Clarus board member since June 2002 and as its Executive Chair since December 2002.

Given his long-time role with Clarus, Kanders' letter to its board states that

"Based on my knowledge as a stockholder and as Executive Chairman of the Board of Directors of the Company, and my review of publicly available information, I believe a sale of the Business would be beneficial to the Company, and am therefore proposing to acquire the Business through an affiliate of Kanders GMP for approximately $160 million on a cash-free, debt-free basis..."

Kanders goes on to say in his letter that he expects to

• "... negotiate a definitive binding agreement within the next 30 days," with the intent
• "... that the proposed transaction would close during the fourth quarter of 2023."

His letter adds that one of the primary benefits of this proposed transaction is that it "... would exceed (Clarus') existing obligations for bank debt, and provide the Company with immediate financial flexibility."

The proposed transaction "... would exceed (Clarus') existing obligations for bank debt, and provide the Company with immediate financial flexibility."

Through GMP Holdings, Kanders would pay $140 million in cash to Clarus at closing for its precision sports businesses, with another $20 million payable to Clarus via a seller note that would "... accrue interest at a customary rate per annum, and come due in 7 years or sooner."

In the Clarus news release, the company states that

"In response to the Buyer’s Proposal, the Board formed a special committee of the Board comprised of independent directors (the 'Special Committee') to review and evaluate the Buyer’s Proposal and any alternative proposals that may be available to the Company, including the possibility of rejecting the Buyer’s Proposal and/or any alternative proposals. The Special Committee has been empowered, among other things, to retain financial advisors and counsel to assist it in its directive from the Board."

Additionally, Clarus also announced that Keith Enlow, president of the Clarus Precision Sport segment, has tendered his resignation effective 29 September 2023, essentially a two-week notice.

According to the release, the company's CFO, Michael J. Yates, "... will serve as interim president of the Precision Sport segment until a successor is hired and formally appointed."

As interesting, and potentially beneficial as the proposed $160 million transaction could be to Clarus and its shareholders, the reality is that the news release and related filings with the SEC do not come close to telling the full story.

The Rest of the Warren B. Kanders Story I Suspect Few Clarus Shareholders Know

The official Clarus biography of Kanders reads, in part, as follows:

"Warren B. Kanders, our Executive Chairman, has served as one of our directors since June 2002 and as Executive Chairman of our Board of Directors since December 2002. Since 1990, Mr. Kanders has served as the President of Kanders & Company, Inc., a private investment firm principally owned and controlled by Mr. Kanders, which makes investments in and provides consulting services to public and private entities. From January 1996 until its sale to BAE Systems plc on July 31, 2007, Mr. Kanders served as the Chairman of the Board of Directors, and from April 2003 as the Chief Executive Officer, of Armor Holdings, Inc., formerly a New York Stock Exchange-listed company and a manufacturer and supplier of military vehicles, armored vehicles, and safety and survivability products and systems to the aerospace and defense, public safety, homeland security, and commercial markets." {NOTE: Bolding added by the author.}

The remaining paragraph of Kanders' bio tells of his educational and professional background and why Clarus believes he "... has the requisite set of skills to serve as a Board member of the Company."

Which, in and of itself, is perfectly fine.

However, as I dug into Kanders' background for this story, an entirely separate thread emerged that Clarus apparently felt was not germaine for its shareholders to know.

Specifically, there is another official biography of Warren B. Kanders; this one, however, is found on the website of Cadre Holdings (NYSE:CDRE) where he's listed as Cadre's CEO and Executive Chairman.

In part, Kanders' bio on the Cadre website reads as follows:

"Warren B. Kanders has served as our Chief Executive Officer and as one of our directors since April 2012. Since June 2002 and December 2002, respectively, Mr. Kanders has served as a director and as Executive Chairman of Clarus Corporation, a NASDAQ listed company focused on the outdoor and consumer industries. From January 1996 until its sale to BAE Systems plc (“BAE Systems”) on July 31, 2007, Mr. Kanders served as the Chairman of the Board of Directors, and from April 2003 as the Chief Executive Officer, of Armor Holdings, Inc. (“Armor Holdings”), formerly a New York Stock Exchange listed company and a manufacturer and supplier of military vehicles, armored vehicles, and safety and survivability products and systems to the aerospace and defense, public safety, homeland security, and commercial markets."

In essence, the introductory paragraphs of the Clarus and Cadre Kanders biographies are quite similar, except that Cadre reveals Kanders' involvement with Clarus, while the Clarus version leaves out any reference to his role with Cadre.

Why? I'm not sure, but I have my suspicions (which I share at the end of this writeup).

According to MarketScreener (and other publishers), 64-year-old Kanders has been the head of 14 different companies during his career.

Additionally, he has been involved in various aspects of the public safety, military, professional, and outdoor markets since at least January 1996 when he led the acquisition of American Body Armor and Equipment in Jacksonville, Florida. That summer the company was renamed Armor Holdings, with Kanders tapped as its CEO and Chairman.

Following more than a decade of significant progress through acquisitions and organic growth (including the $41 million acquisition of Safariland Group in 1999), Kanders led the sale of Armor Holdings to BAE Systems plc in June 2007 for $4.1 billion.

Just five years later, in July 2012, Kanders acquired The Safariland Group back from BAE Systems for $124 million, and he took the reins as Safariland's CEO and Chairman.

During the next decade, the Kanders-led Safariland made 13 separate acquisitions before forming Cadre Holdings in 2021 as the parent company for Safariland and each of its owned/affiliated companies.

Then Kanders and team took Cadre public on the New York Stock Exchange in November 2021, raising $101 million in the process in gross proceeds. {NOTE: At the time of the Cadre IPO, Kanders owned/controlled ~77% of the Cadre.}

For calendar 2022 (ended December 31), Cadre (NYSE:CDRE) had sales of $427 million and now has a market valuation of just under $1 billion.

Today, Cadre has four primary product lines:

1. Body Armor,
2. Explosive Ordinance Disposal,
3. Duty Gear, and
4. Other Protective and Law Enforcement Equipment.

For comparison sake, according to its Annual Report, Clarus generated revenue of slightly more than Cadre last year with external sales of $448 million in 2022 (also ended December 31), with its Precision Sports segment producing just under $133 million of the $448 million (see page 77).

Kanders, Clarus, and Cadre?

Interestingly, did you pick-up on the one product offering that Cadre does not offer today?

Yep. Ammunition. Hmmmmm.

So, does that mean I'm suggesting that Barnes Bullets and Sierra Bullets are destined to become acquisition targets of Cadre if and when they are sold by Clarus to Kanders?

I am not.

However, there would appear to be a bit of cosmic serendipity in such a move.

On top of that,

Sierra and Barnes have always seemed to me to be like tolerated stepchildren, at best, within the Clarus.

Final Observations and Thoughts

That said, do I expect the sale of Barnes Bullets and Sierra Bullets to go through?

Without a question.

In fact, although Kanders' updated 13D Filing explains that there were "... certain informal, exploratory discussions ..." between he and the company, there is zero doubt in my mind that

1. The informal terms of the transaction were hammered-out in full between the parties prior to the Clarus formal announcement and Kanders' Form 13D/A filing yesterday, including
2. The creation of a "... special committee of the Board comprised of independent directors ... to review and evaluate (Kanders') proposal ... and any alternative proposals ... including the possibility of rejecting (any) proposal ..."

All of which appears to be completely above board and legal, at least to this non-attorney.

As such, I'm convinced that this transaction will take place, barring some unforeseen circumstance or the emergence of an unknown outside bidder, of course.

Why? For two reasons:

1. As noted above, the $140 million in cash payable to Clarus allows it to pay-off its existing debt immediately.
2. Additionally, the deal gets Clarus out of the hunting and shooting segments of the Outdoor/Recreation markets in an instant, removing businesses that are noncongruent with many of the company's historically core customers, specifically individuals aligned with Black Diamond, Pieps, Rhino-Rack, MAXTRACK, and SKINourishment.

Additionally, presuming the deal happens, do not be surprised to see Keith Enlow to join Cadre holdings in some capacity post-transaction. (As noted above, Enlow is the current president of Clarus' Precision Sports segment who just tendered his resignation.)

To me, that's also a done deal.

Last of all, given that the proposed transaction would likely be seen as Material to Clarus (from both an accounting and legal standpoint), I suspect shareholder approval will be required before the deal can be closed.

However, given the large Clarus holdings by Kanders, insiders, and institutional stockholders, I foresee little likelihood that the proposed acquisition would not be approved quickly ... unless one or more outside bid comes forth.

How soon? Perhaps as early as November 1st.

But, we shall see.