“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.