Remington Outdoor (Formerly Freedom Group) Offers Investors A Way Out

2013 anti-Freedom Group protest (courtesy nytimes.com)

“Having failed so far to find a buyer, the $20 billion investment firm, Cerberus Capital Management, essentially will let its investors sell their stakes in the company, Remington Outdoor, formerly the Freedom Group, and move the manufacturer out of its funds and into a special financial vehicle,” nytimes.com reports, haltingly. Did you catch that “essentially” bit? Here’s the catch . . .

In its decision to cash out investors, Cerberus has all but acknowledged that it must hold on to its investment for a while longer. In the letter, which was reviewed by The New York Times, the private equity firm said that it would take Remington out of its main private equity funds and put it into a separate financial entity.

Cerberus will then let its investors sell their individual stakes in the gun maker back to the company.

At a price determined by Cerberus, not the free market, and not specified by the Times. Given Remington Outdoors’ disastrous brand management (e.g., driving a Six Sigma spike through once-proud Marlin brand and turfing out AAC’s brain trust), you’ve got to think the price is less than the amount tendered. A lot less. So who’d take that kind of hit?

Investors have 30 days to decide if they want to take up the offer, though many are expected to do so. As recently as last month, California’s treasurer publicly urged the state teacher pension fund to sell its 2.5 percent stake in the gun manufacturer.

You may recall that the California teachers’ union was appalled – shocked! mortified! – that Newtown spree killer Adam Lanza used a Bushmaster AR-15 in his horrific rampage. Cerberus made an immediate, craven, post-Newtown pledge to sell what was then called The Freedom Group. That didn’t happen.

No one wanted to buy the firearms farrago at anything near the price that Cerberus paid to put it together. They still don’t.

The company, which Cerberus had hoped would fetch about $1 billion, is too big for some rivals to afford. Sturm, Ruger & Company, for example, is about the same size, while Smith & Wesson holds a market capitalization of approximately $813 million.

According to Friday’s investor letter, Remington is now valued at about $880 million, including its debt, and investors’ individual stakes will be valued accordingly.

And Remington’s financial performance dissuaded many private equity firms from offering a bid acceptable to Cerberus.

“Market pressures and operational difficulties, which began to significantly impact the performance of the company late in 2013, have impeded both further efforts to sell the company and our ability to provide options for our investors,” the firm wrote in its letter.”

As for the teachers’ 2.5% stake and the Cerberus buyback, it had to be done. The teachers union’s investments in other Cerberus vehicles were too important to compromise. After Feinberg’s fruitless attempts to make a silk purse out of a sow’s ear, or palm-off The Freedom Group on someone else, there remains only one realistic exit strategy: break up Remington Outdoors and sell its constituent parts.

Which aren’t worth much relative to their purchase price, but it’s something. In fact, a Remington Outdoors break-up would be lucky to yield 50 cents on the dollar. But at least it would stop the bleeding, which can only be getting worse with the post post-Newtown downturn. And the bleeding hearts’ bitching, which never stops.

comments

  1. avatar DrewR55 says:

    I wouldn’t mind seeing Remington Outdoors broken up. Maybe Magpul could purchase Bushmaster and turn the brand around?

    1. avatar B says:

      Its kind of nuts, right? Almost every other firearms maker has been flying since 2012 and somehow Remington is choking on its own vomit. Would be cool to see Magpul buy out the Bushmaster parts and tool up and build Magpul Masada ACR’s again.

      1. avatar DrewR55 says:

        Exactly what I was thinking. And maybe for a more reasonable price.

    2. avatar JasonM says:

      Let’s take up a fund and have TTAG buy one of the companies.

      1. avatar MacBeth 51 says:

        Make a fund to buy the whole thing Kickstarter?

        1. avatar neiowa says:

          How long do you think it would take for the ninny nannies at Kickstarter to get the vapors over that and pull the plug. 15min?

      2. avatar Ing says:

        Or Marlin. It’d be pretty cool to be able to say you helped resurrect a brand like Marlin.

  2. avatar CW3 Crusty says:

    They should just do an IPO. Smith & Wesson is up in the last year.. I wouldn’t mind picking up some shares on the cheap.

    1. avatar m11nine says:

      I don’t see how it couldn’t be sold at a fair price. This is a great time to be a public company, it seems from the financial news…

      The sum of the parts may be better in this case since Rem. has lost reputation on many fronts; gun lovers here think their best days are in the past and the disarmament complex also hates them, esp. for Bushmaster.

      Time to have a good old fashioned auction up in New York.

  3. avatar Tommy Knocker says:

    Like to see if investors pull out of Harley-Davidson over weekend events. Yes I am waving the bloody shirt ! Somehow I think Warren Buffett ain’t interested in the moral aspect of inanimate objects.

    1. avatar JasonM says:

      It’s difficult to use a Harley to protect oneself from a tyrannical government, so the anti-gunners are okay with them.

      But I wouldn’t be surprised if Bloomberg (who championed soda bans and trans fat bans, because people are too stupid to make their own choices) wants to ban motorcycles in the name of public safety.

      They can take my BMW when they pry the handlebars out of my cold dead hands!

      1. avatar Accur81 says:

        My 2005 BMW K1200S and 2004 BMW R1150 RT were the least reliable motorcycles I’ve ever had. And the maintenance is ridiculously expensive. I’m glad to be rid of them.

        1. avatar JasonM says:

          My F800GT has over 7000 flawless miles on it.

        2. avatar Dyspeptic Gunsmith says:

          Thanks for those data points. I’ve always had a hankering for a K-bike, but what always had me hesitating was the qualifications and hemming/hawing of the owners.

        3. avatar slow joe crow says:

          I guess there is an argument there against complexity and electronics. My 1978 BMW R100S has been stone reliable for 25 years. Carbs and pushrods FTW, plus Mercedes W123 grade engineering specs.

      2. avatar An English Person says:

        Interesting how quickly this article prompts comments linking BMW; I perceive Remington has had quality control issues of late, perhaps due to attempts at cost cutting, and is losing out to the rise in small boutique gunsmiths.
        BMW could do what they did with Land Rover and Husqvarna: rewrite Remington’s manufacturing and management processes particularly in the area of quality control, invest in r&d, and trim some of the corporate fat – and then sell the company some seven or so years later having done their bit for corporate social responsibility.

  4. avatar Geoff PR says:

    If it means there can actually be an owner who knows the business, then good.

    ONLY if it’s price is right.

    It would be sweet if some parts bought cheap can return to profitability.

  5. avatar arsh says:

    If they re-do their brand – liquidate accordingly and ramp up quality I’d be interested in a public opportunity to invest. I just got into S&W as it’s the only affordable brand on the market and I’ve already done okay for a month’s investment. Considering I planned S&W as 2 years minimum I’m liking the return possibilities. If liberals want out of Remington let them, just re-vamp it correctly and allow the public to invest.

  6. avatar Owen says:

    +1 to this article owing to the use of “farrago” when the authors name is Farago. I bet you’ve been itching to use it! LOL

    1. avatar mark_anthony_78 says:

      He’s scratched that itch many times in previous articles…

      1. avatar Geoff PR says:

        Wordsmiths love to play with language…

  7. avatar Montesa_VR says:

    One theme in the article irritated me. They attributed the difficulty in selling Remington Outdoor to softening demand for firearms rather than mismanagement. They mentioned the falloff for Colt and Smith and Wesson, and ignored better numbers for Sturm Ruger. I think the main motivation for the NYTimes was to do a little victory dance on the misfortune of the firearms industry.

  8. avatar Warp says:

    A reference to Newtown / Sandy Hook, really??

    Let me tell you something.

    I was helping a friend in Nigeria (he’s not FROM Nigeria, he’s IN Nigeria, working for the US State Department, but also trying to start a business) follow a lead for equipment he was sourcing, a company that resides just North of Trumbull CT. So, that particular day, I decide to leave home and take I-84 to CT-25 on a long trip that eventually lets me go to work, albeit later than usual. I take I-84 to Exit 11, to local roads, ultimately getting onto 25 to Trumbull. When I do this, there are two state police officers and a sign in the grassy median indicating that “everyone must sign in.” The state police wave me along and I continue down 25 on my way and complete my business for the day.

    This was on 12/13/2012.

    Now, tell me when they answer Wolfgang Halbig’s questions instead of disappearing more participants.

  9. avatar Don from CT says:

    Its tragic really. Particularly if you lived near any of these destroyed companies, or knew someone who worked for them.

    As someone who grew up in the New Haven area. It saddens and disgusts me to have watched the Marlin product, brand, and employees treated like simple working capital.

    I don’t know if Six Sigma is really part of the TFG / Remington management method, but it is an evil evil thing when applied to a whole company. (an under acknowledged problem with six sigma programs is the religious zealotry associated with the program itself. When I worked at Pfizer shortly after Jeff Kindler and all his (Six Sigma crazed) ex-GE folks took over, it seemed like nobody was actually getting their work done because they were all too busy with their Green and Black belt projects.

    Don

    1. avatar Mike Blank says:

      Having been in the factory, it is very depressing how they treated the folks who worked for Marlin. That was a well run, family company where you could feel the comradery amongst the entire staff from the President down the the fella sweeping up the place.

      A true shame!

  10. avatar Former Water Walker says:

    Hey maybe south americans can get enough $ together-how much cash does Taurus have? LOL

  11. avatar DickDanger says:

    End of era. Sad to see, really, but then again, Big Green’s grave started being dug the moment it was taken over by a conglomerate (I think that’s the word i’m looking for).

  12. avatar mike says:

    Sig might as well buy the rest of what’s left of the “old AAC.” For a nice bargain i’m sure.

  13. avatar Jelly Roll says:

    I have Marlin 36, 42 years old and Remington 870 39 yrs old and 870 32 yrs old. Great firearms. The biz world if full of turn around stories of old brands that have fallen on hard times for a variety of reasons. Cerebus investors will take a hit on this, but that’s life in the investment world. Remember GM, Ford & Chrysler products in the 1980’s and 90’s? Remember Apple before Steve Jobs came back in 1996 and returned it to the top of the heap. Competent manufacturing producing a quality product will bring people back. Me, I still want a Marlin 1894 in 357 to go with my revolvers. But not until the QC comes back. I would not be surprised if a foreign manufacturer purchased the bones of these great brands just for the designs and moved the production to Brazil, Turkey, Czech Republic etc..

  14. avatar Ralph says:

    They should offer the same deal to people who bought their crappy guns.

    1. avatar JasonM says:

      An actual gun buyback! Can we show up and offer slightly more for the guns? A Remington 700 action makes for a great gun, as long as you blueprint it and replace the trigger and stock. I’d love to get another for buyback prices.

  15. avatar Ing says:

    “Operational difficulties”: In other words, mismanagement. But of course they can’t come out and say they just hacked two of the industry’s most trusted and iconic brands to death.

  16. avatar Gary B says:

    Not very pleased with my Remington 887, good concept, poor quality control/

  17. avatar A55beard says:

    Cerberus? Mass Effect? Gun company? Holy shit

  18. avatar Anonymous says:

    Well, after freedom group takes a dump and liquidates all their assets – maybe Mike Smith at AAC can get a secretarial job working for Nick Leghorn here at TTAG? Maybe… As long as he doesn’t “breathe” too hard.

  19. avatar IdahoPete says:

    “Market pressures and operational difficulties …” Translation: crappy management by MBAs who never owned a gun, and poor quality control have resulted in collapsing sales.

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