A Classic American Revolver Gets Ready To Spin- Smith & Wesson Set To Spin Off American Outdoor Brands

Smith & Wesson(SWBI)- it’s one of the most storied names in firearms, and, as of June 1, it’s the name not just of a brand, but of a company as well. In preparation for a late summer spinoff, American Outdoor Brands Corporation(AOBC), changed its name to Smith & Wesson Brands, Inc. The American Outdoor Brands name is not disappearing from the stock market for long, however. After a brief hiatus, it will return when the Smith & Wesson firearms business spins off the outdoor products and accessories business as American Outdoor Brands under the ticker symbol AOUT.

Outdoor products, you may recall from the spinoff of Vista Outdoor(VSTO), refers to ammunition, knives and other related products, particularly in the context of hunting. Vista has struggled post-spinoff, though more recent results have been better.  Smith & Wesson reported strong revenue growth in its most recent quarter, and ended the year with net debt of just $34 million. The company also provided an update on the spinoff:

Jeffrey D. Buchanan, Chief Financial Officer, commented, “During the quarter, we changed our company name from American Outdoor Brands Corporation to Smith & Wesson Brands, Inc. and our ticker symbol from AOBC to SWBI in preparation for the spin-off of our outdoor products and accessories business as a tax-free stock distribution to stockholders.  On track for completion in August, and subject to final approval by our Board of Directors and customary regulatory approvals, the spin-off will create two independent, publicly traded companies: Smith & Wesson Brands, Inc. (the firearm business) and American Outdoor Brands, Inc. (the outdoor products and accessories business).”

Just yesterday, Marketwatch reported that gun maker stocks were “surging” as gun sales increased amidst civil unrest and Democratic candidate Joe Biden’s rise in the polls.

American Outdoor first announced the spinoff in November 2019, but just two months later, CEO James Debney was out due to “conduct inconsistent with a non-financial company policy.”  Debney, who had been slated to become CEO of the American Outdoor business post-spinoff, was replaced by Mark Smith and Brian Murphy as co-CEOs. Still, the spinoff remains on track for August.

The Motley Fool’s Rich Duprey looked at both companies and came out bullish on Smith & Wesson, but not so much on American Outdoor.  I cannot be positive on Smith & Wesson given potential liability issues. Although gun makers are broadly protected from liability under the Protection of Lawful Commerce in Arms Act, some cases winding through the courts may circumvent this.  At the same time, there is substantial political support for repealing this act that may come to fruition after the upcoming elections. Liability is a binary outcome that could make these companies a zero for shareholders, and that’s a bridge too far for me.

Disclosure: The author holds no position in any stock mentioned.


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