Arctic Cat buys back all of its shares from Suzuki

Suzuki’s ownership stake eliminated with transaction

Arctic Cat Inc. announced in December that it has purchased all of Suzuki Motor Corporation’s approximately 6.1 million shares of Arctic Cat Class B common stock for a purchase price of $79.3 million.

Analysts Craig Kennison of Robert W. Baird & Co. and Mark E. Smith of Feltl and Co. provided Powersports Business with research notes reflecting the transaction’s impact on the Minnesota-based OEM’s stock position.

Kennison’s report, “Hello Kitty! Suzuki Sells Stake at Discount,” offers that “Arctic Cat paid $13/share (32 percent discount to the closing price on Dec. 27), to acquire 33 percent of shares outstanding.” Kennison goes on to write that Baird “had identified a Suzuki transaction as a major catalyst for the stock, which has been performing well under the leadership of new CEO Claude Jordan. Arctic Cat is building around innovative products, lean inventory, operational excellence and a sound balance sheet.”

Learn more about the Arctic Cat-Suzuki transaction by watching the new Inside Powersports video on PowersportsBusiness.com.

Smith reports that the “shares were purchased at a very attractive price. … We think the purchase was a great use of cash as current shareholders now own approximately 33 percent more of the company with float unchanged and the company’s balance sheet still in a strong position.”

The stock buyback reduces Arctic Cat’s outstanding shares from 18.4 million to 12.3 million, increasing non-Suzuki shareholders’ ownership of outstanding common shares by approximately 33 percent, and leaves Arctic Cat’s public share float unchanged. Arctic Cat funded this purchase with existing cash on its balance sheet. The company expects to end its 2012 fiscal year with more than $60 million in cash and no debt, after deducting cash used for the share purchase from Suzuki.

“Based on our current cash position and ongoing cash generation, we feel comfortable with this share purchase and believe it provides great value to our remaining shareholders,” Arctic Cat president and CEO Claude Jordan said. “Suzuki has been a major shareholder since 1988 and a valued engine supplier for the Arctic Cat brand since 1976. We have benefited significantly from this long-standing relationship. Although Suzuki will no longer have an ownership stake in Arctic Cat, we look forward to continuing to purchase snowmobile engines for the next two model years, in addition to having Suzuki supply Arctic Cat with snowmobile engine parts to service existing engines after that time.”

Arctic Cat snowmobiles have included engines made by Suzuki for decades. Beginning with the 2014 model year, Arctic Cat will make its own sled engines.

As previously announced on June 10, 2010, Suzuki will supply snowmobile engines to Arctic Cat through the 2014 model year, as well as engine parts to service existing engines. Arctic Cat will then move snowmobile engine manufacturing to its St. Cloud, Minn., facility, where the company has manufactured ATV engines since 2007.

In conjunction with the buyback of all of Suzuki’s Class B Arctic Cat shares, Suzuki’s representative has resigned from Arctic Cat’s board of directors, effective immediately. This is a position granted Suzuki as part of its ownership of the Class B shares, does not continue following the buyback and brings the total number on Arctic Cat’s board to seven, the majority of which are independent directors.

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