Ruger On Marlin Assets Purchase

Ruger is cautious in their public statements. I think that is why they waited until today to make an announcement of their winning bid for the Marlin firearms assets of Remington Outdoor Company. The bid was only approved by the US Bankruptcy Court for the Northern District of Alabama yesterday.

Ruger will be paying $30 million from cash on hand for these assets and expects to close on the purchase this coming month. When Cerberus Capital Management bought Marlin in January 2008, the terms of the deal were not released. However, I think it would be a good assumption that Cerberus paid a lot more than $30 million. In that deal, Cerberus not only got Marlin, but also H&R, New England Firearms, and L.C. Smith.

I think Marlin fans and lovers of lever guns will rejoice given the comments of Ruger CEO Chris Killoy below:

“The value of Marlin and its 150-year legacy was too great of an opportunity for us to pass up,” said Ruger President and CEO Chris Killoy. “The brand aligns perfectly with ours and the Marlin product portfolio will help us widen our already diverse product offerings.”

The transaction is exclusively for the Marlin Firearms assets. Remington firearms, ammunition, other Remington Outdoor brands, and all facilities and real estate are excluded from the Ruger purchase. Once the purchase is completed, the Company will begin the process of relocating the Marlin Firearms assets to existing Ruger manufacturing facilities.

“The important thing for consumers, retailers and distributors to know at this point in time,” continued Killoy, “is that the Marlin brand and its great products will live on. Long Live the Lever Gun.”

As Michael Bane said on his podcast today, Ruger knows how to make firearms and this is good for Marlin.

Cerberus Capital May Have Found Investor For Its Gun Business

A report in today’s Wall Street Journal states that Cerberus Capital may have found an investor for its firearms business. The unidentified investor and/or lender would hold a minority stake in the business large enough that Cerberus could let some of its investors sell out their stakes.

But Cerberus hasn’t reached an agreement with a buyer. The sales process has been complicated by several factors, including subsequent high-profile shootings and financing issues for some possible bidders, the person familiar with the matter said. Some offers were lower than what Cerberus thought was fair, the person said. In addition, some private-equity firms looked at the company but dropped out in early September, the person said.

Cerberus had originally sought around $1 billion for the business, a person familiar with the matter said. The new planned deal, including about $200 million in a credit facility, values the business at around $1.2 billion.

Freedom early on attracted interest from gun makers such as Smith & Wesson Holding Corp. and Sturm, Ruger & Co., people familiar with the matter have said.

Meanwhile, business at Freedom, which was already profitable, has improved. Freedom reported that revenue for the quarter through September rose 46% from a year earlier to $347.1 million as its earnings nearly doubled to $31.2 million.

In the post-Newtown shootings hysteria, Cerberus announced that it would sell its Freedom Group firearms business which includes brands such as Remington and Bushmaster. This was, in part, a reaction to the shooter using a Bushmaster rifle which he took from his mother after he murdered her.

The California State Teachers Retirement System – the largest teachers’ pension fund in the country – is one of the investors who is trying to get out of the investment fund. My guess is that there are other public pension funds who are also trying to sell their stakes in Cerberus because they don’t want to deal with pressure from their holier than thou members.

Cerberus CEO Feinberg Drops “Stalking Horse” Bid

As was reported back in late April, Cerberus CEO Stephen Feinberg and others partners were putting together a bid for the Freedom Group. He explained at the time that while they were selling the group of companies he didn’t want it to go at fire sale prices.

Both Reuters and the Wall Street Journal report that Feinberg and his group have dropped their bid for the Freedom Group.

From Reuters:

Feinberg no longer sees the need to make an offer for the gun company, the person said, because Freedom Group is in dialogue with a number of industry players, as well as financial investors, and he views the sale process as robust.

No deal has been agreed to and talks with the potential buyers are ongoing, the person added.

The Wall Street Journal goes into more detail. One source said that Cerberus initially wanted about $1 billion for the Freedom Group but now wants more for it. They have received a number of bids in what is considered to be the first round of bidding.

People familiar with the process say several companies submitted bids last month when a first-round of offers was due.

It is possible Cerberus will opt not to sell, one of the people said.

Freedom Group’s results have improved amid rising gun and ammunition sales since the tragedy and as restructuring moves implemented by Cerberus take effect, these people said. Cerberus initially planned to seek around $1 billion for the company, but now wants more, one of the people said.

Some of the bids came in over $1 billion while others were lower, one of the people said. It is common in a bidding process for the field of suitors to thin out after the initial round of bidding, so the level of interest in the company remains unclear.

I’d love to know who the bidders are as would we all. You have to wonder if the high bidder will be a investment group like Cerberus, a diversified company like DuPont which used to own Remington years ago, or a firearms manufacturer like Ruger or FNH-USA. Whatever happens will be interesting.

More On The Sale Of The Freedom Group

Last week was somewhat consumed with the vote on Manchin-Toomey and the Boston Marathon bombings. The Wall Street Journal ran a couple of stories about the sale of the Freedom Group by Cerberus. You may remember that Cerberus put the Freedom Group up for sale in December after the Newtown shootings in response to pressure from some major pension funds who were investors.

In the first story dated April 16th, the Journal reports that a bid group is being formed by Stephen Feinberg and other partners in Cerberus. The rationale behind this is to provide a floor in the auction price for Freedom Group in order to prevent lowball offers.

Mr. Feinberg, Cerberus’s co-founder and chief executive, and other partners, using their own money, are looking to team up with other investors to place a bid for Freedom Group, the people said. The Cerberus partners would have a minority financial position in the group, according to the people. The partners are reaching out to other wealthy individuals and families to join the bid, the people said.

Cerberus would then form a special committee of investors of the private-equity firm who, along with the Cerberus board, would evaluate any bids. The bidding partners wouldn’t be part of that review process. The Cerberus group would withdraw from the bidding if a suitor tops its offer by 10% or more, the people said. The group wouldn’t receive a breakup fee.

That story also reports that 16 potential bidders have looked at the Freedom Group’s financials. The auction is being run by investment bank Lazard Ltd.

A follow-up story in the Wall Street Journal revealed some of the potential bidders for the Freedom Group who have examined the company’s financial information.

Smith & Wesson Holding Corp. and Sturm, Ruger & Co. have asked for detailed information on Freedom Group, the people said. Alliant Techsystems Inc., an aerospace and defense company that also makes ammunition and firearms accessories, has also expressed interest, they said.

While both Ruger and S&W are firearms manufacturers, this would mark the first move into firearms manufacturing for Alliant Techsystems. ATK currently makes Federal and Estate ammunition along with Alliant powder and a whole host of components such as Speer and CCI. While not mentioned, I think it would be conceivable that FN-Herstal which manufactures both Winchester and Browning sporting arms might be interested as well.

UPDATE: Frank W. James has a very perceptive comment over at SayUncle regarding the interest shown by Ruger, ATK, and S&W in the Freedom Group. In essence, they are using the opportunity to examine Freedom Group’s books not to buy the company but to compare their costs to those of Freedom Group. In other words, they are getting competitive intelligence for free.

Behind The Cerberus Announcement Yesterday

As was mentioned yesterday in relation to the announcement that Cerberus Capital Management is putting the Freedom Group up for sale, the threat of the California State Teachers Retirement System to remove $500 million in investments from Cerberus was a good part of their rationale. It appears that CalSTRS was itself reacting to the bad press it was getting regarding their investment in Cerberus and, by extension, the Freedom Group.

From Dan Primack of Fortune.com in his rather anti-gun screed about CalSTRS’s investment in Cerberus:

Do you know who owns more than a 6% stake in the maker of .223
Bushmaster rifles, like the one used last Friday to murder 20 first
graders and seven adults in Newtown, Connecticut? California public
schoolteachers.

The company in question is Freedom Group, a privately-held firearms
conglomerate formed by private equity and hedge fund group Cerberus
Capital Management. Cerberus created the platform in April 2006 via the
acquisition of Bushmaster, after which it added another 10 makers of
firearms, ammunition and accessories (including Remington, Marlin Arms
and Barnes Bullets).

The California State Teachers’ Retirement System (CalSTRS) committed to invest
a whopping $500 million into a $7.5 billion Cerberus fund that has
helped bankroll Freedom Group. That means that it effectively could own a
6.67% stake in the gun maker, which filed to go public in late 2009
before pulling the offering in early 2011. In fact, the figure could be
even higher since CalSTRS also committed $100 million to a $1.4 billion
predecessor fund, which likely made the original investment.

CalSTRS has an investment policy statement that reportedly takes into account a number of risk factors including “social injury” and “human health”. Primack thinks their indirect investment in the Freedom Group violated this investment policy statement. He then serves up this bit of codswallop:

But I also think that it’s time for our large nonprofit institutions to
put some of their money where their mission is. Profit should be the
primary goal of their investment offices, but not at the expense of
their broader purposes. If a schoolteachers union or university
endowment or nonprofit foundation truly cares about stopping the next
mass killing, then they should not provide capital that produces the
instruments of such destruction.

By Primack’s rationale, CalSTRS then should not invest in any company that makes or deals in petroleum products, agricultural fertilizers, metal hardware, garden tools, or any number of other products that could have been used to make improvised explosives or sharp pointy things.

Obviously, this sort of nonsensical criticism found its mark with the CalSTRS’s investment board. They released this statement regarding their investment with Cerberus and the pending sale of the Freedom Group.

WEST SACRAMENTO, CA – The California State Teachers’
Retirement System (CalSTRS) released a statement today regarding its
investments in private equity funds managed by Cerberus Capital
Management that are invested in the Freedom Group, which manufactures
firearms:

“The tragic and devastating acts that took place December 14 at Sandy
Hook Elementary School in Connecticut have prompted many in this
country to call for change: To determine what we can do differently to
help ensure the unthinkable never happens again.

“In our case, CalSTRS investment staff immediately began reviewing
our investments in private equity funds managed by Cerberus Capital
Management (Institutional Series Three and Series Four) that are
invested in the Freedom Group, which manufactures firearms. Our
investments staff also initiated discussions with Cerberus to learn more
about the facts surrounding the investments.

“This morning, Cerberus Capital Management issued a statement (External link) noting its intent to immediately engage in a formal process to sell its investment holdings in the Freedom Group.

“Cerberus is a multi-strategy private equity firm. They invest in a
wide variety of firms and strategies; Financial Services, Healthcare,
Consumer & Retail, Manufacturing & Distribution, Building
Products, Energy & Natural Resources, Apparel, Paper, Packaging
& Printing, Transportation, Industrial & Automotive, and Travel
& Leisure.

“CalSTRS first invested in Cerberus Capital Series 3 in 2003, and
again in 2007 in Cerberus Capital Series 4 as part of the core Private
Equity program. The Freedom Group represents a very small investment
within these funds. CalSTRS owns 2.4 percent of Freedom Group, not 6.67
percent as reported by some media outlets.

“CalSTRS has established a thorough vetting process for potential
investments that seeks to test not only their financial potential, but
their social, human and environmental impacts as well. In fact, current
policies require that the risks associated with products that pose
significant threats to human well-being be taken into account before an
investment is made by CalSTRS investment managers. They are outlined in CalSTRS 21 Risk Factors (PDF – 5.5MB), which we adopted in 2008 after our investments in Cerberus.

“Moving forward, CalSTRS will work to ensure that all of our
investments are taking these very important criteria into
consideration.”

The California State Teachers’ Retirement System, with a
portfolio valued at $154.8 billion as of October 31, 2012, is the
largest educator-only pension fund in the world. CalSTRS administers a
hybrid retirement system, consisting of traditional defined benefit,
cash balance and voluntary defined contribution plans, as well as
disability and survivor benefits. CalSTRS serves California’s 856,000
public school educators and their families from the state’s 1,600 school
districts, county offices of education and community college districts.

Cerberus Moves To Ditch The Freedom Group

The Wall Street Journal is reporting that Cerberus Capital Management plans to sell their firearms manufacturing arm in the wake of the Newtown tragedy. Their statement below says that they don’t want to be pulled into a national political debate concerning firearms.

Cerberus Capital Management Statement Regarding Freedom Group, Inc.


NEW YORK, Dec. 18, 2012 /PRNewswire/ — We were shocked and deeply
saddened by the events that took place at the Sandy Hook Elementary
School in Newtown, CT on December 14, 2012.  We cannot comprehend the
losses suffered by the families and friends of those killed by the
unthinkable crimes committed that day.  No words or actions can lessen
the enormity of this event or make a dent in the pain that was inflicted
on so many.


In 2006 affiliates of Cerberus Capital Management, L.P. made a
financial investment in Freedom Group.  Freedom Group does not sell
weapons or ammunition directly to consumers, through gun shows or
otherwise.  Sales are made only to federally licensed firearms dealers
and distributors in accordance with applicable laws and regulations.  We
do not believe that Freedom Group or any single company or individual
can prevent senseless violence or the illegal use or procurement of
firearms and ammunition. 


It is apparent that the Sandy Hook tragedy was a watershed event that
has raised the national debate on gun control to an unprecedented
level.  The debate essentially focuses on the balance between public
safety and the scope of the Constitutional rights under the Second
Amendment. As a Firm, we are investors, not statesmen or policy makers. 
Our role is to make investments on behalf of our clients who are
comprised of the pension plans of firemen, teachers, policemen and other
municipal workers and unions, endowments, and other institutions and
individuals.  It is not our role to take positions, or attempt to shape
or influence the gun control policy debate. That is the job of our
federal and state legislators.


There are, however, actions that we as a firm can take.  Accordingly,
we have determined to immediately engage in a formal process to sell our
investment in Freedom Group.  We will retain a financial advisor to
design and execute a process to sell our interests in Freedom Group, and
we will then return that capital to our investors.  We believe that
this decision allows us to meet our obligations to the investors whose
interests we are entrusted to protect without being drawn into the
national debate that is more properly pursued by those with the formal
charter and public responsibility to do so.

Our thoughts and prayers are with the families and communities impacted by this tragic and devastating event.

The Freedom Group which has been renamed Remington Outdoor Company, Inc. consists of Remington, Bushmaster, DPMS/Panther Arms, Remington Military, Remington LE, Parker Gunmakers, Barnes Bullets, Advanced Armament, Tapco, Dakota Arms, Marlin, Para-USA, H&R, Mountain Khakis, and Remington PMPD.

Among the upper management of Cerberus are such political figures as former VP Dan Quayle and former Treasury Secretary John Snow. Steve Feinberg, CEO of Cerberus, is reportedly an avid hunter and shooter. According to the Journal, Cerberus came under pressure from certain investors to sell the unit.

Cerberus’s statement comes shortly after it faced pressure Monday from
former New York Governor Eliot Spitzer as well as the California State
Teachers Retirement System, which said it is reviewing a $500 million
investment commitment to the New York-based private-equity firm.

 I find the move by Cerberus to sell Freedom Group aka Remington Outdoor Company much more disturbing than the nonsense coming from the gun prohibitionists and their politician allies. To me it seem a great harbinger of the difficulties that lie ahead for us with regards to gun rights. Investment capital companies such as Cerberus are known to make decisions on numbers and fact without dealing in emotion. They obviously feel that the business environment for them will be difficult in the days ahead due to political forces. The Freedom Group companies manufacture a lot of AR-15s and these are the focus of the gun prohibitionists.

For the firearms industry, this move by Cerberus may actually be beneficial. If the new owners of Remington Outdoor Company are not beholden to public employee/union pension funds and other institutional investors, it will be a good thing. The unity of the firearms industry in the face of the threat of legislation is paramount. They don’t need the management of one of the major players to go wobbly such as is evident in the response of Cerberus.