Wednesday, June 10, 2015

The R51 Debacle Coming Home To Roost?

Remington Outdoor Company announced big changes in their management yesterday. George Kollitides is out as CEO and Chairman along with the CFO Ron Kolka who is "retiring". In addition, Walter McLallen and James Pike are retiring from the Board of Directors. Kollitides is being replaced by Jim "Marco" Marcotuli who is a director. Marcotuli will be the President, CEO, and interim Chairman.

If I had to speculate, I'd say that both the board and Cerberus didn't feel that Kollitides was up to the management challenges facing Remington. They are combining operations of most units in Huntsville, they are facing a threat to one of their iconic products - the Remington 700 rifle - over trigger issues and attendant lawsuits, and their splashy roll out of the R51 pistol turned into a debacle over quality issues.

It was also reported on Monday in the Sacramento Bee that the California State Teachers' Retirement System had finally cashed out their holdings in Remington aka Freedom Group.
The announcement came three weeks after Remington’s owner, New York private equity firm Cerberus Capital Management, offered to let CalSTRS and other investors cash out of their investments in the gun maker. Cerberus will place its investment in Remington in a separate investment vehicle.

“Consent to monetize our exposure to Remington Outdoor completes our decision to divest from banned firearm manufacturers,” said CalSTRS Chief Executive Jack Ehnes in a prepared statement. “All along we have sought a transaction that balances the best financial interests of the more than 879,000 educators we serve, while holding consistent with the values of our membership.”
CalSTRS had previously sold their investments in publicly traded Ruger and Smith & Wesson. The Remington investment was part of $375 million investment by the teachers' pension in Cerberus Capital Management.

According to the press release from Remington Outdoor Company, Kollitides stepped down "to pursue other interests but will continue to serve as a paid Senior Advisor to the Company for one year." That is HR-speak for he was allowed to resign in lieu of being fired and a "Golden Parachute" for keeping his mouth shut about it.

Ron Kolka had only been the CFO of Remington Outdoor Company since 2013. He had previously been the CFO of Daimler Chrysler prior to the Cerberus Capital buyout. He then stayed on with Cerberus after the Chrysler bankruptcy. For the next 30 days, he will be working with Jeff Pritchett who is joining the ROC board. Pritchett started his career with GM and then with Delphi in financial management. He then was the CFO of Vertis Communications before moving to Cerberus in 2013. Given that Remington had an increased net loss for the last quarter when compared to a year ago and also had a substantial decline in sales, I think this is a move to shore up the financial side of the company.

Jim Marcotuli who is stepping up to the CEO position has been the Co-Lead Director, Operations, of ROC since September 2014. Prior to joining Cerberus a few months prior to this, Marcotuli had been the President and CEO of North American Bus Industries which makes transit buses since 2009. He was responsible for moving much of their operations from Hungary to Anniston, Alabama.

Moving up to Vice Chairman of the Board will be Jim Campbell. Prior to joining Cerberus and the ROC board, Campbell spent 30 years with General Electric where his last job was as CEO, Appliances and Lighting. He joined GE as a management trainee in 1981 a year after Jack Welch became CEO of GE. Campbell came up through the "talent pipeline" at GE which was a rigorous performance driven, "up or out", environment. While there really isn't much of an age difference between Campbell and Marcotuli, I see Campbell's role at ROC as being a mentor to Marcotuli. He is quoted in the press release as saying, "I look forward to supporting Marco and the rest of the team as we redouble our efforts to ensure superior quality and customer service are front and center in everything we do."

Walter McLallen came to the ROC Board from hedge fund Meritage Capital Advisors. He was being paid at least $235,000 annually to serve as Vice Chairman of the Board. In addition, Meritage was being paid a retainer of $400,000 annually for advisory services. McLallen is Managing Director and Co-Founder of Meritage. McLallen is in his late 40s according to his Bloomberg profile.

Also retiring with McLallen is James J. Pike. Pike has been a member of the Remington board since 2007. He is a Managing Director of Cerberus Capital Managment. In his case, age may be a valid reason for his retirement. According to Bloomberg, Pike is 71. He served in management roles within the metalworking and parts industry for much of his career.

I see the combination of Marcotuli and Campbell as an effort to bring in more experienced management for Remington. Both are a good 10 years or more older than Kollitides and both have experience managing manufacturing operations. Kollitides, by contrast, came from the mergers and acquisitions world. His expertise was useful in building the Freedom Group/Remington Outdoor Company stable of companies. However, it isn't what was needed going forward to help ROC regain its footing in the firearms world.


  1. In my experience, guys who make deals, rarely like to build things. Building stuff isn't flashy. (And I have seen this in both my investments, and in the places I have worked.)

    The quality (or the devil) is in the details. And even the purchasing agents can foul up the works by changing the supplier on a key part. (But we saved 10 cents on every thousand items... too bad they didn't work so well.)

    Building quality stuff also isn't flashy. Especially if you are building something like the 700 that really shouldn't have changed very much in years. Or in decades. (If ain't broke... is not something that they want to hear.) How do you generate thrills for the investors? Or get your name in the news? Or whatever? You get your name in the news by doing mergers and acquisitions. By racing a new product to market, or talking about the changes to "this year's model."

  2. Every one seems to champion the business that busts the union and moves to free land down south, now the ghosts of this philosophy haunts them. You read the propaganda from the CNC company, that the machine will spit out quality parts and all you have to do is hire some chimp to put then together, well that is not always the case.

    1. You build your sh!++y cars and Colt 1911s up north, and the "chimps" down south will build F-22s and nuclear warheads.

    2. Because that way of thought has worked ever so well for Detroit, California, Maryland...

    3. BMW and Mercedes-Benz both trust Southern chimps to put their world renowned cars together.

  3. I worked for a small company that made some small volume parts for GM. Now and then we would get a special job, which was actually the company's bread-and-butter; the other stuff kept the doors open but the special jobs made the profit. Then we lost the main business because a Japanese company could do it- literally- a nickel per part cheaper.
    50 people out of work overnight. Most of us got other jobs quickly enough but the company shut down permanently.
    The "special jobs" we used to do had to be contracted out to another company at twice the price.
    Financial geniuses, they are.

  4. Always play to your strengths, and minimize your weaknesses. Remington lost their way, long ago..The R51 is a big black eye, and the last straw..( or 'nail in the coffin'..)

  5. Always play to your strengths, and minimize your weaknesses. Remington lost their way, long ago..The R51 is a big black eye, and the last straw..( or 'nail in the coffin'..)