Cerberus CEO Feinberg Drops "Stalking Horse" Bid

As was reported back in late April, Cerberus CEO Stephen Feinberg and others partners were putting together a bid for the Freedom Group. He explained at the time that while they were selling the group of companies he didn't want it to go at fire sale prices.

Both Reuters and the Wall Street Journal report that Feinberg and his group have dropped their bid for the Freedom Group.

From Reuters:

Feinberg no longer sees the need to make an offer for the gun company, the person said, because Freedom Group is in dialogue with a number of industry players, as well as financial investors, and he views the sale process as robust.

No deal has been agreed to and talks with the potential buyers are ongoing, the person added.

The Wall Street Journal goes into more detail. One source said that Cerberus initially wanted about $1 billion for the Freedom Group but now wants more for it. They have received a number of bids in what is considered to be the first round of bidding.

People familiar with the process say several companies submitted bids last month when a first-round of offers was due.

It is possible Cerberus will opt not to sell, one of the people said.

Freedom Group's results have improved amid rising gun and ammunition sales since the tragedy and as restructuring moves implemented by Cerberus take effect, these people said. Cerberus initially planned to seek around $1 billion for the company, but now wants more, one of the people said.

Some of the bids came in over $1 billion while others were lower, one of the people said. It is common in a bidding process for the field of suitors to thin out after the initial round of bidding, so the level of interest in the company remains unclear.

I'd love to know who the bidders are as would we all. You have to wonder if the high bidder will be a investment group like Cerberus, a diversified company like DuPont which used to own Remington years ago, or a firearms manufacturer like Ruger or FNH-USA. Whatever happens will be interesting.

More On The Sale Of The Freedom Group

Last week was somewhat consumed with the vote on Manchin-Toomey and the Boston Marathon bombings. The Wall Street Journal ran a couple of stories about the sale of the Freedom Group by Cerberus. You may remember that Cerberus put the Freedom Group up for sale in December after the Newtown shootings in response to pressure from some major pension funds who were investors.

In the first story dated April 16th, the Journal reports that a bid group is being formed by Stephen Feinberg and other partners in Cerberus. The rationale behind this is to provide a floor in the auction price for Freedom Group in order to prevent lowball offers.

Mr. Feinberg, Cerberus's co-founder and chief executive, and other partners, using their own money, are looking to team up with other investors to place a bid for Freedom Group, the people said. The Cerberus partners would have a minority financial position in the group, according to the people. The partners are reaching out to other wealthy individuals and families to join the bid, the people said.

Cerberus would then form a special committee of investors of the private-equity firm who, along with the Cerberus board, would evaluate any bids. The bidding partners wouldn't be part of that review process. The Cerberus group would withdraw from the bidding if a suitor tops its offer by 10% or more, the people said. The group wouldn't receive a breakup fee.

That story also reports that 16 potential bidders have looked at the Freedom Group's financials. The auction is being run by investment bank Lazard Ltd.

A follow-up story in the Wall Street Journal revealed some of the potential bidders for the Freedom Group who have examined the company's financial information.

Smith & Wesson Holding Corp. and Sturm, Ruger & Co. have asked for detailed information on Freedom Group, the people said. Alliant Techsystems Inc., an aerospace and defense company that also makes ammunition and firearms accessories, has also expressed interest, they said.

While both Ruger and S&W are firearms manufacturers, this would mark the first move into firearms manufacturing for Alliant Techsystems. ATK currently makes Federal and Estate ammunition along with Alliant powder and a whole host of components such as Speer and CCI. While not mentioned, I think it would be conceivable that FN-Herstal which manufactures both Winchester and Browning sporting arms might be interested as well.

UPDATE: Frank W. James has a very perceptive comment over at SayUncle regarding the interest shown by Ruger, ATK, and S&W in the Freedom Group. In essence, they are using the opportunity to examine Freedom Group's books not to buy the company but to compare their costs to those of Freedom Group. In other words, they are getting competitive intelligence for free.

This Doesn't Make Sense To Me

The Wall Street Journal is reporting this morning that Remington Arms is planning to invest $20 million in an upgrade to its Ilion, New York plant. The news comes from local politicians who had a meeting on Wednesday with the company.

Local media outlets report that three senators and three Assembly members met with Remington officials on Wednesday to discuss what they could do to ensure the company keeps its plant in the Herkimer County village of Ilion, where Remington employs about 1,200 people.

The report goes on to say that Remington themselves has no comment on the news.

Local news station WKTV Utica has more on the story. The story of the meeting of the New York legislators with senior officials from Remington Arms was the lead story on their evening broadcast.




The senior officials involved were Otto Weigl, senior vice president government and legislative affairs, Jonathan Sprole, general counsel, and Paul Merz, Ilion plant manager. This meeting is balanced out by a meeting between Gov. Rick Perry (R-TX) and Freedom Group CEO George Kollitides in Austin, Texas. Perry tweeted a picture of himself with Kollitides while holding what appears to be a Remington Defense AR-15 and wearing a Remington jacket on March 1st.

As I said in the headline, it doesn't make sense for Remington to invest money in plant and equipment upgrades to the Ilion plant given the NY SAFE law and the anti-gun fervor of New York's Gov. Andrew Cuomo. That said, it could be used as a bargaining chip with the industrial and economic development teams of other states that are seeking to have the plant move to their state.

The reality is that it isn't easy to relocate a plant of the size of the Remington plant in Ilion. While building a new plant in another state or moving the machinery wouldn't be hard,  it would be hard to replicate the workforce. I could see Remington moving the AR, pistol, and semi-auto rifle production out of that plant and leaving the shotgun and bolt-action rifle manufacturing there. In a way that would make sense as the pistol production could be shifted to the Para USA plant in North Carolina and the AR and other semi-auto production could go to a new plant anywhere.

As with all of these things, we'll see.

Who Cares About Jobs When Ideology Is At Stake

The gun prohibitionists in the Minnesota State House and Senate obviously don't care about jobs if they are in the firearms industry. Otherwise, Rep. Alice Hausman (DFL-St. Paul) and her compatriots would never have introduced HF 241. This bill would make it a crime to "manufacture, import, transfer or possess an assault weapon" after its enactment.

The Freedom Group subsidiary DPMS/Panther Arms is located in St. Cloud, Minnesota. It employs 115 employees. In the video below, Adam Bullard, Product Manager for DPMS/Panther Arms testifies before the Minnesota House Public Safety and Policy Committee on HF 241.

The only exceptions the bill provides for the exemption of the manufacture of "assault weapons" for sale to the armed forces or to a Minnesota law enforcement agency. Notice that says nothing about exempting out of state sales and that includes out of state sales to even law enforcement agencies.

Just like Remington is being courted in New York, I'm sure that DPMS/Panther Arms management is hearing from industrial recruiters in other states.

Oh, The Irony!

In the little Mohawk Valley village of Ilion (population 8,053) sits the nation's oldest continuously operated arms manufacturer Remington Arms. It employs over 1,300 well-paid and talented workers in a region that has seen over 11,000 manufacturing jobs lost since 1990.

The village had a town meeting in January before the vote on the NY-SAFE Act. As you can well imagine, their concern was over jobs and not gun control.




The NY-SAFE bill was enacted into law and the concerns over jobs was ignored.

So it should come as no surprise that a number of states have contacted the Freedom Group about moving their Remington Arms plant to a state that is more appreciative of gun rights and gun manufacturing jobs.

At least five states have contacted the parent company of Remington Arms to encourage the gun manufacturer to relocate in response to New York’s new, tougher gun control laws.

Lawmakers from Michigan, South Carolina, Arizona and Oklahoma have all sent letters to Remington’s owner, Freedom Group, since the state Legislature passed tougher gun control legislation two weeks ago. Texas first contacted the company in November 2012.

While North Carolina isn't mentioned in that list, I would be surprised if officials from the state's economic development office haven't already trekked to Madison, NC to speak with Freedom Group executives about relocation. If they haven't, they are being derelict in their duties.

Mohawk Valley economic development officials and politicians are taking these contacts very seriously. Assemblywoman Claudia Tenney (R-New Hartford) called fears that Remington might relocate "realistic" while Herkimer County IDA Executive Director Mark Feane said they are very concerned given the incentives that other states might offer.

No one knows at this time what the Freedom Group will do. However, if they do move the Remington Ilion plant, I would find it deliciously ironic if the trucks moving the plant's machinery just happened to detour around the Governor's Mansion and the New York Capitol Building on their way out of state. It might lengthen the journey by a few hours but it would be worth it to remind politicians about the law of unintended consequences.

Prohibitionist Pipe Dreams

Imagine if you will that the Freedom Group is bought by a consortium of investors including Michael Bloomberg and George Soros. Imagine further that the new CEO is a pro-gun control "hunter" and that the new board of directors will include representatives from the families of the children shot in Newtown. Top this all off with the notion that the company will provide "moral leadership" to the gun industry and will establish a fund to compensate crime victims who have been shot with firearms produced by the Freedom Group.

You would be right to ask if I was either showing signs of early dementia or having some sort of drug-induced hallucinogenic dream. Actually, it is neither. This comes from an opinion article written by John Macintosh for CNN.

Mr. Macintosh was a partner with private equity firm Warburg Pincus and is now a partner in SeaChange Capital Partners. The latter sees it mission as:

SeaChange Capital Partners is an entrepreneurial organization that seeks to deploy its resources - team, relationships, reputation and funds - to achieve the greatest social impact. At present, these situations fall into two areas: Nonprofit Collaboration and Advisory Services. SeaChange also engages in making markets within our extended network by organizing convenings wherever we see topics of common interest that are directly connected to transactions.

 Mr. Macintosh specifically suggests that a new non-profit "special purpose acquisition company" be established to buy the Freedom Group. He would call this new non-profit by the cutesy name of  BeForFreedom.org or BFF. He suggests getting the pension funds that have invested in Cerberus to roll their portion of the investment in the Freedom Group into BFF.

His "moral turnaround" plan for the Freedom Group would have the following parts:

(i) Appoints a high-profile CEO with impeccable credentials as a hunter and/or marksman who is nevertheless in favor of gun-control.

(ii) Elects a new board of directors including representatives from the families of victims killed in Newtown (and/or other massacres perpetrated with Freedom Group weapons), military veterans and trauma surgeons with real experience of human-on-human gunfire, and law enforcement and mental health professionals.

(iii) Operates the business as if sensible gun laws were in place (this may turn out to be a wise investment in future-proofing the company): discontinuing sales of the most egregious assault weapons and modifying others as necessary so they cannot take huge-volume clips; offering to buy back all Freedom Group assault weapons in circulation; micro-stamping weapons for easy tracking; and providing price discounts for buyers willing to go through a background check and register in a database available to law enforcement.

(iv) Voluntarily waives its rights to support the NRA and other lobbying groups.

(v) Creates a fund to compensate those who, despite its best efforts, are killed or wounded by its weapons.

(vi) Agrees that if the effort to provide moral leadership in the weapons industry doesn't succeed within a year, BFF should consider corporate euthanasia, even though it entails a risk of allowing more retrograde manufacturers to fill the void in the market left by the then-deceased company.

Mr. Macintosh does realize that this would be a long shot in his opinion but it has to be tried. He goes on to say:

that a reconstructed Freedom Group, fighting for sensible change as a fifth column from within the industry, might well find that many people -- even a significant portion of the NRA's members -- would buy from a truly responsible (and high quality) gunmaker if given the chance.

I'm not some young semi-retired corporate raider who has found religion, so to speak, like Mr. Macintosh. However, I'd say I have a better grasp on the firearms industry and reality than does Mr. Macintosh. If he really thinks this would come to pass and people would buy from the reconstituted Freedom Group, I'd offer these three little words of warning.

Smith and Wesson.

Cerberus Moves To Ditch The Freedom Group

The Wall Street Journal is reporting that Cerberus Capital Management plans to sell their firearms manufacturing arm in the wake of the Newtown tragedy. Their statement below says that they don't want to be pulled into a national political debate concerning firearms.

Cerberus Capital Management Statement Regarding Freedom Group, Inc.

NEW YORK, Dec. 18, 2012 /PRNewswire/ -- We were shocked and deeply saddened by the events that took place at the Sandy Hook Elementary School in Newtown, CT on December 14, 2012.  We cannot comprehend the losses suffered by the families and friends of those killed by the unthinkable crimes committed that day.  No words or actions can lessen the enormity of this event or make a dent in the pain that was inflicted on so many.

In 2006 affiliates of Cerberus Capital Management, L.P. made a financial investment in Freedom Group.  Freedom Group does not sell weapons or ammunition directly to consumers, through gun shows or otherwise.  Sales are made only to federally licensed firearms dealers and distributors in accordance with applicable laws and regulations.  We do not believe that Freedom Group or any single company or individual can prevent senseless violence or the illegal use or procurement of firearms and ammunition. 

It is apparent that the Sandy Hook tragedy was a watershed event that has raised the national debate on gun control to an unprecedented level.  The debate essentially focuses on the balance between public safety and the scope of the Constitutional rights under the Second Amendment. As a Firm, we are investors, not statesmen or policy makers.  Our role is to make investments on behalf of our clients who are comprised of the pension plans of firemen, teachers, policemen and other municipal workers and unions, endowments, and other institutions and individuals.  It is not our role to take positions, or attempt to shape or influence the gun control policy debate. That is the job of our federal and state legislators.

There are, however, actions that we as a firm can take.  Accordingly, we have determined to immediately engage in a formal process to sell our investment in Freedom Group.  We will retain a financial advisor to design and execute a process to sell our interests in Freedom Group, and we will then return that capital to our investors.  We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so.

Our thoughts and prayers are with the families and communities impacted by this tragic and devastating event.

The Freedom Group which has been renamed Remington Outdoor Company, Inc. consists of Remington, Bushmaster, DPMS/Panther Arms, Remington Military, Remington LE, Parker Gunmakers, Barnes Bullets, Advanced Armament, Tapco, Dakota Arms, Marlin, Para-USA, H&R, Mountain Khakis, and Remington PMPD.

Among the upper management of Cerberus are such political figures as former VP Dan Quayle and former Treasury Secretary John Snow. Steve Feinberg, CEO of Cerberus, is reportedly an avid hunter and shooter. According to the Journal, Cerberus came under pressure from certain investors to sell the unit.

Cerberus's statement comes shortly after it faced pressure Monday from former New York Governor Eliot Spitzer as well as the California State Teachers Retirement System, which said it is reviewing a $500 million investment commitment to the New York-based private-equity firm.

 I find the move by Cerberus to sell Freedom Group aka Remington Outdoor Company much more disturbing than the nonsense coming from the gun prohibitionists and their politician allies. To me it seem a great harbinger of the difficulties that lie ahead for us with regards to gun rights. Investment capital companies such as Cerberus are known to make decisions on numbers and fact without dealing in emotion. They obviously feel that the business environment for them will be difficult in the days ahead due to political forces. The Freedom Group companies manufacture a lot of AR-15s and these are the focus of the gun prohibitionists.

For the firearms industry, this move by Cerberus may actually be beneficial. If the new owners of Remington Outdoor Company are not beholden to public employee/union pension funds and other institutional investors, it will be a good thing. The unity of the firearms industry in the face of the threat of legislation is paramount. They don't need the management of one of the major players to go wobbly such as is evident in the response of Cerberus.

George Kollitides On The Freedom Group

Cam Edwards interviewed George Kollitides, the new Acting CEO of the Freedom Group, on Tuesday. I reported on Friday about the leadership shakeup at the Freedom Group where then-CEO Robert Nardelli stepped down and Kollitides stepped in to replace him at least temporarily.

Leadership Changes At Freedom Group

According to a story from CBS Marketwatch, Freedom Group CEO Robert Nardelli has stepped down after just two months in the job. He said according to his "statement Friday that 'this is a great time' to focus on his investment and consulting company, XLR-8 LLC."

George Kollitides will take over as interim CEO.

George Kollitides, 42, a former managing director at Cerberus Capital Management and member of Freedom Group's board, will act as interim CEO of the company.

Freedom Group said it expects to name a permanent successor for Nardelli soon.

Nardelli has also transitioned into a role as senior advisor to the CEO of Cerberus and the company's affiliate Cerberus Operations and Advisory Co. LLC. Freedom Group's chairman John Blyston will also transition to a role as senior advisor to Cerberus and its affiliates

Kollitides will replace Blystone as chairman of the board of Freedom Group.

Freedom Group is owned by Cerberus Capital Managment. It owns companies ranging from Remington and Bushmaster to Mountain Khakis and Advanced Armament (suppressors).

UPDATE: The full press release from Cerberus and the Freedom Group.

MADISON, N.C., March 9, 2012 /PRNewswire via COMTEX/ -- Robert L. Nardelli and Freedom Group, Inc. ("FGI"), announced today that Nardelli has stepped down from his position as CEO of Freedom Group, effective immediately. George Kollitides, a member of FGI's Board of Directors and formerly a Cerberus Capital Management, L.P. ("Cerberus") Managing Director, has been named Chairman of the Board replacing current Chairman John Blystone, and will act as the interim CEO of FGI pending the completion of negotiations with a successor CEO expected to be named shortly.

Nardelli said, "I informed the Board of Directors of FGI that I would step down as CEO of FGI in order to devote attention to XLR-8 LLC, my investment and consulting company. This is a great time for me to focus on XLR-8 and leverage my 41 years in a variety of businesses and sectors and my recent private investing and advisory experience with Cerberus and its affiliates, to raise money to acquire underperforming companies, and to help them operate more profitably and improve their enterprise value. I have transitioned into a role as Senior Advisor to both Steve Feinberg, CEO of Cerberus, and its affiliate Cerberus Operations and Advisory Company, LLC ('COAC'), and I will continue to work with them in that capacity."

Nardelli continued, "Since joining the FGI board in September 2010, I have gained great respect for the dedicated and talented people of this iconic company. FGI has a proud past and a bright future in large part because of being guided by a very strong management team and board."

"Over the past 17 months, Bob's involvement with the business has enhanced FGI's operational capabilities, strengthened the management team, and created a metrics-driven organization and 'how-to' culture," said Steve Feinberg, Cerberus CEO. "We are grateful to him for his contributions. We are also pleased to add George's talent, industry expertise and knowledge to our management team, which will also be supplemented in the near-term by a world-class business leader as the permanent CEO."

Blystone will also transition to a role as Senior Advisor to Cerberus and its affiliates. Feinberg stated, "I am truly grateful for all of John's strong work on FGI and I am looking forward to him taking another senior leadership role in one of our portfolio companies."

Nardelli spent more than 30 years at General Electric Co. managing a wide range of businesses, including appliances, lighting, transportation and power systems. He also was CEO and chairman of The Home Depot and CEO and chairman of Chrysler LLC before becoming CEO of COAC in 2009.

Kollitides had been at Cerberus Capital Management since 2003, where he has served as a Managing Director, focusing on the defense, firearms and related industries. Kollitides was the principal architect of the investments in FGI for Cerberus. An avid outdoorsman, Kollitides is a long-time member of numerous hunting, shooting, Second Amendment and conservation organizations. He currently serves as a Trustee of the NRA Foundation and Director of the NRA's Hunting and Wildlife Committee, Presidents Committee on Advancement and Nominating Committee. He is also a Director of the New York State Rifle & Pistol Association.

About Cerberus Capital Management, L.P. Established in 1992, Cerberus Capital Management, L.P., along with its affiliates, is one of the world's leading private investment firms with over $20 billion under management. Through its team of investment and operations professionals, Cerberus specializes in providing both financial resources and operational expertise to help transform undervalued companies into industry leaders for long-term success and value creation. Cerberus holds controlling or significant minority interests in companies around the world. Cerberus is headquartered in New York City with affiliate and/or advisory offices in the United States, Europe, the Middle East and Asia.

About Freedom Group, Inc. Freedom Group is the world's leading innovator, designer, manufacturer, and marketer of firearms, ammunition, and related products for the hunting, shooting sports, law enforcement, and military markets. As one of the largest manufacturers in the world of firearms and ammunition, the company has some of the most globally recognized brands including Remington, Marlin, Harrington & Richardson, New England Firearms, L.C. Smith, Parker, Bushmaster, DPMS/Panther Arms, EOTAC, and INTC.

Rumor Confirmed - Freedom Group Buys Para-USA

One of the rumors coming out of the SHOT Show was that Para-USA was in negotiations with Cerberus's Freedom Group to be bought out. The release sent out today by the Freedom Group confirms that they are indeed buying Para-USA.

Madison, NC -- Freedom Group, Inc., (FGI) through a wholly owned subsidiary has announced today that it has finalized an asset purchase agreement to acquire certain assets of Para USA, INC., (Para).

Founded in 1985, Para has built a solid and enviable reputation for innovation, performance and reliability. Firearms enthusiasts, serious shooting competitors and law enforcement agencies choose with confidence from a wide and growing variety of Para pistols. Para's revolutionary high capacity frame and light double action (LDATM) trigger systems, are part of the innovation that Para has brought to the world famous 1911 design.

"We welcome Para into the Freedom Group Family of Companies," stated. E. Scott Blackwell, Chief Sales and Marketing Officer of Freedom Group Inc. "Para USA is a leader in handgun technology and their fine products exemplify quality, innovation and performance. Para is a perfect complement to our industry-leading family of brands, and our success in 2011 with the Remington R1 - 1911. We look forward to deploying both human and financial resources to continue to develop and supply current and future handguns for consumers and our channel partners. We also wish to thank all its employees for their continued dedication that has made Para a success."

Para will continue day-to-day operations at their Pineville, NC based facility.

Steve at The Firearms Blog speculates that it won't be too long before operations are moved from Pineville to either Ilion, NY or Mayfield, KY where Remington has their main plants. I think it might depend on whether the Para-USA facilities will allow greater production of 1911's than the Ilion plant and at a lower cost per unit.

UPDATE: Jim Shepherd passed on this little tidbit in The Outdoor Wire about the acquisition.

Can't say a lot beyond the releases about FGI's intentions, but a note arrived late last night Para's longtime PR/Media contact Kerby Smith. In it, Smith offered a little insight into how things are shaping up -at least from his perspective.

"The company that I worked for is no longer active," Smith wrote, "and I am no longer employed...I assume that this e-mail will be shut down soon...It has been a great pleasure working with you for PARA USA, Inc."

The Para acquisition means Freedom Group has acquired a running pistol company with proven products to plug into as many of the FGI company lines as it pleases.

Para, if allowed to continue, will have access to FGI's extensive sales, marketing, dealer, and materials supply chain. About all that remains to be seen is how FGI will bring Para into the fold-and how they'll position Para products. For now, the official line is that Para USA will continue its day-to-day operations from its relatively new headquarters in Pineville, North Carolina.

Steve at The Firearm Blog has more on this acquisition today as well. He mentions that two Para-USA employees were formerly senior level managers with Freedom Group. 

A New Capital Infusion Into The Firearms Industry

Yesterday, Jim Shepherd at The Outdoor Wire mentioned that Savage Arms had just had an infusion of equity capital from Norwest Equity Partners on Tuesday of this week.

From the Norwest Equity Partners news release:

Erik Torgerson, a NEP partner and senior advisor, stated, “Savage is an industry leading, best-in-class company. Our investment will help advance global market expansion and the continued development of an innovative, diversified products platform. The Company operates within a fragmented industry, and there is significant opportunity for consolidation through add-on acquisitions in both existing and adjacent market categories. Under the leadership of Ron Coburn and his accomplished management team, Savage is well-positioned to continue to expand and exceed its growth objectives.” Torgerson and Tim DeVries, a NEP managing general partner, have joined the Savage board of directors.

Coburn stated, “This new investment partnership with NEP marks an exciting time for Savage. On behalf of our management team and employees, we look forward to working with the NEP team, exploring new business opportunities and advancing our business potential together.”

I agree with Jim's interpretation of this where he say it means "we have money and there are companies out there that would be good fits, so we may go shopping." He also notes that other deals and consolidations in the firearms industry may be coming over the next few weeks.

A little history about Norwest Equity Partners and their past investments will show just how significant this investment is for the firearms industry. NEP is an offshoot from Minneapolis-based Northwest Bancorporation that was started in 1961. They originally specialized in Minnesota companies but have since broadened their geographic reach. Their specialty is working with companies to bring them to that next level. Among the companies that they have made equity investments in over the years are Cray Research (supercomputers), Gymboree (kid's clothing ), Dairy Queen (fast food), and PeopleSoft (software). These are all now big-name companies.

In 1998, Norwest Bancorporation merged with Wells Fargo Bank. While the name going forward was Wells Fargo, in reality Norwest bought Wells Fargo and then took their name. This is the same thing that NationsBank (formerly North Carolina National Bank) did when they merged with Bank of America. The combined Wells Fargo which has now added Wachovia into the mix is the fourth largest bank in the United States according to the Federal Reserve.

With this sort of money and expertise behind Savage Sports Corporation, I think we are now seeing a well-funded competitor to Cerberus's Freedom Group. Both Savage and Freedom Group are strong on rifles but weak on handguns. I anticipate seeing one or more of the handgun manufacturers being bought by one or the other of these companies. Indeed, one of the rumors I remember reading coming out of the 2012 SHOT Show had Freedom Group buying Para-USA. I don't know the truth of it but it makes sense given that both are headquartered in North Carolina and are about a two hour drive apart in location.

This will be interesting to watch over the next few months.

Weak Industry?

Josh Sugarman, Executive Director of the Violence Policy Center, had an article in the Huffington Post on Monday with his analysis of the retracted Freedom Group IPO. Based on this one company, he said the gun industry was in decline due to a "a cratering gun market".

I guess the folks at Sturm, Ruger didn't get the message that their market was "cratering". They announced on Monday the results of the share repurchase program.

Sturm, Ruger & Company, Inc. (NYSE-RGR), today announced that during the first quarter of 2011 the Company repurchased 133,400 shares of its common stock for $2.0 million in the open market. The average price per share repurchased was $14.94. These repurchases were funded with cash on hand. At the end of the first quarter of 2011, $8.0 million remains authorized and available for share repurchases and 18.9 million shares remain outstanding.

Rarely do weak companies repurchase their own stock. The primary reason is that they don't have the cash on hand for the transaction. You will note that Ruger used cash on hand to fund these repurchases.

Stock repurchases generally increase shareholder value and are a positive thing. Ruger paid an average price of $14.94 per share. Yesterday's closing price for Ruger (RGR) stock was $23.00 per share. That is a 53.9% increase.

The stock market obviously doesn't perceive that Ruger is in a "cratering gun market". According to website Seeking Alpha, in mid-March when the S&P 500 dropped 4.3%, Ruger was one of the companies that bucked the trend.

The bottom line is that certain segments of the firearms market are stronger than others. Handguns are the hot segment of the firearms market. This is especially true of smaller, more concealable handguns. Freedom Group - other than Remington's 1911R1 - is not in the handgun business. Ruger is in the handgun market and has moved strongly into the smaller pistols and revolvers. The results of that move are evident in its stock price.

It Depends On Whose Ox Is Being Gored

The Wall Street Journal reported that the Freedom Group's expansion of their Remingon Arms facility in Ilion, NY plant will add 40-50 new jobs there. They are moving their Bushmaster operations from Windham, ME to Ilion in a consolidation of operations. The means that Bushmaster AR-15's - those evil black rifles - will now be made in New York State.

The senior Senator from New York, Chuck Schumer, has a well-deserved reputation for being an enemy of gun owners and gun rights. That is why I find his remarks on the expansion of the Remington plant so ironic. He says he is all for guns if it means jobs for his constituents and if he can push the military to buy more "made-in-New York" firearms.

FOR IMMEDIATE RELEASE: March 22, 2011

SCHUMER: 40-50 NEW JOBS COMING TO REMINGTON’S MANUFACTURING PLANT IN ILION – JOBS WILL BE A HUGE BOOST TO MOHAWK VALLEY’S ECONOMY

Bushmaster Firearms Set To Move Production From Maine Facility To Ilion, Bringing Scores of New Jobs And Economic Opportunity To Central NY

Schumer Is A Long-Time Supporter Of Remington Plant, Helped Bring New Business By Securing Vital Grants And a Level Playing Field to Compete For Government Contracts

Schumer: These Jobs Are Great News For Mohawk Valley Economy

Today, U.S. Senator Charles E. Schumer joined Remington officials and plant employees to announce that Bushmaster Firearms is relocating a manufacturing facility from Windham, Maine to Ilion, NY, bringing over forty new jobs to Central New York in the process. Schumer has been a long-time supporter of manufacturing at the Remington plant, urging top Army officials to open up competition for the Army’s small arms contracts to other U.S. manufacturers and domestic producers across the country like the Ilion, New York-based Remington. Today, Schumer applauded Remington’s decision to add new jobs to the productive and capable work force already making the factory an economic powerhouse in the Mohawk Valley.

“What a great day for Remington’s Ilion plant, the Mohawk Valley, and Central New York’s economy,” said Senator Schumer. “Thanks to Remington’s continued confidence in this capable workforce, we’re going to see even more good-paying jobs at the plant, creating positive ripple effects throughout the region. The addition of these jobs strengthens the ability of the Remington plant in Ilion to compete for the many Department of Defense small arms contracts available this year by adding to the skilled workforce and further enhancing the manufacturing capability for M-4 and M-16 style firearms. As I have always done, I will work tirelessly for a fair and open contracting process with the military so the Ilion plant and its workers can compete on a level playing field, and continue to produce the high quality equipment our men and women in uniform deserve and expect.”

Senator Schumer has long been a strong supporter of the Remington facility. He led the effort in Congress to repeal the law that limited competition for small arms contracts, so that Remington can now compete for small arms contracts with the Department of Defense. Schumer also successfully pushed the Army to open up their application process and solicit competing contracts in order to modify Army's M-4 carbine. As a result of this effort, Remington is now competing with other companies to win the contract.

After the Army identified a requirement to upgrade its M-24 sniper rifle used in Afghanistan, Sen. Schumer secured funding for the upgrade from Congress. Schumer’s success in securing funding for this project ultimately allowed Remington to compete for and win a contract to upgrade the Army's 3600 M24 sniper rifles (now called the XM2010). The Army recently ordered an initial quantity of 250 XM2010s, which Remington is currently manufacturing and the Army is shipping to our sniper teams in Afghanistan. Schumer’s push for an open contracting process that allows Remington to compete with other manufacturers has resulted in economic growth and new jobs coming to the Ilion facility.

Given that the Freedom Group's headquarters is in Madison, North Carolina - just north of Greensboro - it is a shame that they didn't bring those jobs South to North Carolina.

Bushmaster President to Retire

From Bushmaster:

Bushmaster Firearms® Announces the Retirement of the Company President

Windham, ME –After over a 40 year career in business and manufacturing, John A. DeSantis, President of Bushmaster Firearms has decided to retire and to pursue other challenges and another exciting phase of his life. John has been a tireless driving force behind the success of Bushmaster. He surrounded himself with a great team of professionals and together they have grown Bushmaster into the largest commercial AR platform rifle manufacturer in the world. John commented that “Bushmaster will always have a warm place in my heart and I have enjoyed my experience with the Freedom Group of Companies. I look forward to spending more time with my family.”

“On a personal note, John is truly a world-class gentlemen and I am proud to call him a personal friend. John has been an invaluable asset to our company and me personally. His wisdom and his high regard for our product, combined with his deep respect for the rich traditions of our industry, have been a great source of counsel and advice to me.” said Ted Torbeck, CEO, Freedom Group, Inc.

John’s retirement will be official on July 31, 2010, but he has graciously agreed to stay on and oversee the day to day business of Bushmaster until his replacement can be found. He also will continue on a consulting arrangement to help grow our modern sporting rifle business.


About Bushmaster Firearms International, LLC

Bushmaster Firearms International, LLC (BFI) is the leading supplier of AR15/M16 type rifles in the United States for Law Enforcement, security and private consumer use. Headquartered in Windham, Maine, with additional facilities in Dallas, Georgia and Lake Havasu, Arizona, BFI supplies aluminum and advanced carbon fiber-based rifle platforms in calibers ranging from 5.56mm/223 to 50BMG. These and associated accessories manufactured by BFI meet the tactical rifle needs of US customers as well as Military, Law Enforcement and Security clients from over 50 countries worldwide. Visit our web site at www.bushmaster.com.

I wonder if this has anything to do with the plans for the Freedom Group to go public.