How could a billion dollar company owned by the endlessly, enormously profitable Cerberus Capital Management possibly be on the brink of bankruptcy? It’s not like Steven J. Feinberg’s mob ever invested in a business of which they knew nothing and mismanaged it into the toilet. Oh wait! Chrysler and Chrysler Financial. Thanks to the American taxpayer, Cerberus walked away from both companies without taking a hit. If the firearms-oriented farrago known as The Freedom Group goes belly-up, Uncle Sam won’t lift a finger. It’s the company that made the assault rifle that killed babies in Newtown! Yup, according to nypost.com, things are looking grim for TFG . . .
Remington, which produced the Bushmaster rifle used in the Newtown shooting, is struggling with more than $1 billion of debt as sales slump. Consumers who initially rushed to purchase a gun in late 2012 out of fear about stricter laws have pulled back on purchases.
“People who intended to buy a gun in three years bought one then,” said Dougherty & Co. Senior Research Analyst Andrea James.
Remington is also facing an expensive recall that could cost more than $25 million, said a source. This month the company said it would replace millions of triggers after reports that guns would fire without being triggered.
More troubling, nine parents of children killed at Sandy Hook Elementary School sued the gun maker last week over the rifle wielded by Adam Lanza.
Yes and no. While the sales slump and debt burden weigh heavily on The Freedom Group’s misshapen shoulders, the suit against Bushmaster is nothing more (or less) than a PR stunt. Federal law shields gunmakers against prosecution for criminal use of their products. The Newtown civil suit doesn’t have a hope in hell of making it to a jury.
That said, and said above, the Newtown connection has – and will continue to – make The Freedom Group toxic to any mainstream investor.
The situation “spells disaster” for Remington, said a source familiar with the company’s financials.
Remington has seen its earnings before interest, taxes, depreciation and amortization fall from $240 million last year to $125 million this year, the source said. Revenue has fallen from $1.25 billion last year to $1 billion in 2014.
In October, Moody’s Investors Service downgraded Remington’s debt to B2, or high credit risk.
“Remington’s weakened financial condition heightens ongoing rating concerns, including high regulatory and product liability risks and the discretionary nature of its products,” Moody’s wrote.
Cerberus said Remington has cash and that the business overall remained strong.
Strong perhaps. But as my father constantly reminded me, the secret to business is to take in more than you spend. Somehow I don’t think The Freedom Group is adhering to Peter Farago’s dictum. The Post and I reckon TFG is on track to learn one of dad’s other dicta: everything sells at a price. As we almost learned two years ago, apparently . . .
In late 2012, Cerberus tried unsuccessfully to sell Remington, formerly known as the Freedom Group, for $1.3 billion, a source said. A group of well-off Midwestern families expressed interest at a lower price of between $800 million and $900 million.
Remington passed and ended up borrowing more money to pay investors a dividend, raising its debt load to more than $ 1 billion.
Potential buyers will just wait for the company to sink further into trouble and try to pick up the pieces on the cheap, a source predicted. That’s especially true now that the demand for long guns, like the ones Remington makes, has faded.
That fading demand for long guns? Just wait ’til Hillary Clinton’s presidential aspirations gain credibility and immediacy. Not that TFG can wait that long. With the California Teachers Union [still] breathing down Cerberus’ neck(s) to dump the non-synergistic agglomeration of firearms-related companies, with TFG bleeding cash, there will come a time, soon, when Feinberg’s pals will have to cut bait and fish.
I just hope someone sympathetic and experienced will buy Marlin on the cheap and restore it to its former glory. That is all. [h/t DD]