“It has been more than 15 months since private equity firm Cerberus Capital Management pledged to sell Freedom Group, maker of the Bushmaster rifle that was used in the Sandy Hook Elementary School massacre,” finance.fortune.cnn.com reports. “The promise came after pressure from the California State Teachers’ Retirement System (CalSTRS), a public schoolteachers pension fund that was invested with the relevant Cerberus fund. By late last year, however, it had become apparent that Cerberus could not find a taker for the company. Too controversial, too big, too integrated.” Yeah, that’s one theory. The other explanation . . .
Feinberg’s farrago of firearms-related companies makes about as much sense as a platypus – and it doesn’t look as if evolution will be as kind to the conglomerate as it’s been to the egg-laying mammal. The Freedom Group has run Marlin into the dirt. Remington’s quality has also slipped into the region known as “sub-par,” they’ve fired the head of marketing and Big Green’s foray into the concealed carry market (the R51) has been universally panned (save for gunblast.com). Advance Armament Corp. haven’t released anything new since KB abandoned ship.
Of course, that’s the gun guy’s take. In the world of high finance it’s all about the numbers. You may recall that Cerberus tried to float the Freedom Group as an IPO. Twice. Equally, if some large financial entity thought The Freedom Group could make them enough money to justify the asking price, they’d have bought it. They don’t, so they don’t. And so . . .
Reuters reported on Dec. 12 that Cerberus had turned to the debt markets for at least $175 million that it would use to basically buy out limited partners that no longer wanted exposure to Freedom Group. Kind of an in-house direct secondary.
As of this writing, however, Fortune has learned that the ownership of Freedom Group remains exactly the same. Moreover, Cerberus investors have not yet received information from the firm about how they could be bought out (something that CalSTRS, for example, still desires).
A source close to the situation says that the process has moved slowly because it is so complicated to structure the relevant investment vehicles, and because Cerberus needed to be sure it could raise enough money to satisfy all anticipated LP demand (remember: If it offers to buy out CalSTRS at a certain price, it needs to offer the same deal to all other LPs). The firm is now expected to send specific details of its offer to LPs within the next several weeks.
I’m thinking Cerberus is between a rock and a hard place. They don’t want to sink more money into/increase their exposure in The Freedom Group. But they need to bail out squeamish investors to protect Cerberus. So they’ve done . . . nothing.
My prediction: they’ll keep doing nothing as long as they can. Until the firearms market surge subsides and they realize the Freedom Group is worth more in pieces than as a conglomerate. But not as much as they paid for it.