With NASGW fully underway at the Gaylord Conference Center here in Grapevine, Texas, we’re already hearing some cautiously optimistic sounds from the manufacturers and wholesalers gathered here. Not being privy to everything shown in the closed-door meetings around the assembly hall, we can’t speak directly to the products themselves, but can say with reasonable certainty there are plenty of new products coming into the pipeline.
But the buzz conversation isn’t about products or sales, it’s what everyone sees as an eventual confrontation between European powerhouse Beretta Holding, SA, and Sturm, Ruger & Company (NYSE:RGR).
Late Tuesday, following a hurried meeting of the Ruger board of directors, the company announced the formation of a Shareholder Rights Plan. I’m told the decision was made after Beretta refused to engage with the company, despite having indicated in its requisite SEC filings it fully intended to enter into discussions with Ruger regarding areas where the two companies could work together. The Tuesday announcement of the plan stated it came following Beretta’s refusal to sign non-disclosure or a standstill agreement.
Non-disclosure agreements are nothing out of the ordinary between companies. The standstill agreement, however, would require Beretta to stop acquiring Ruger stock. Without that agreement, the Ruger board, following meetings with outside counsel, elected unanimously to enact a shareholder rights plan. On Wall Street, it’s more commonly known as a “poison pill.” Similar plans came to prominence in the 1980s when corporate “raiders” - investors with the intent to stage hostile takeovers of companies - were countered by target companies.
The Ruger plan doesn’t differ significantly from many others. It applies equally to all current and future stockholders, but doesn’t preclude or deter offers the Board determines to be in the interest of all shareholders. According to Ruger, it is designed to “deter the acquisition of actual, de facto or negative control of the Company by any person or group without appropriately compensating its stockholders for that control.”
Under the agreement, Ruger will issue one “right” for each share of common stock. The rights will initially trade with Company common stock and will generally become exercisable only if any “person or group acquires 10.0% or more of the Company’s outstanding stock.”
If/when that “triggering percentage” is met -even if only by a single share, the rights are “exercisable” and the company’s shareholders - with the exception of the person/group triggering the rights- will be entitled to acquire shares of the common stock at 50% discount to the then-current market price of the stock.
The plan doesn’t keep the triggering entity from owning its shares, but it should significantly dilute their holding.
At first glance, this action might seem a bit extreme until you realize Beretta has, by its own SEC filings, continued to acquire Ruger shares. As of their amended SEC filing, they currently hold a minimum of 9% of Ruger shares. That might not seem like much when a majority of Ruger shares are held by institutional investors. However…the Beretta holding, when compared to institutional investors, puts them slightly ahead of Vanguard, the second-largest institutional shareholder.
Beretta’s not talking. But Ruger’s sent a clear message that it may be time for a chat. And, as always, we’ll keep you posted.
— Jim Shepherd