Manufacturer of the gun used in Newtown may stay in the Cerberus family after all

April 17, 2013
April 17, 2013

“We try to hide religiously,” Stephen Feinberg, founder and chief executive of private equity giant Cerberus Capital Management, told investors a few years ago. “If anyone at Cerberus has his picture in the paper and a picture of his apartment, we will do more than fire that person. We will kill him. The jail sentence will be worth it.”

Feinberg is about to have his picture in the paper.

Reuters reports that Feinberg is considering a bid for America’s largest gun company, Freedom Group, which Cerberus said it would sell following the elementary school shooting in Newtown, Connecticut, that left 20 children and 6 adults dead. The assault rifle used in that shooting was manufactured by Freedom Group’s Bushmaster Firearms.

Feinberg is a pheasant hunter who favors a bolt-action rifle made by Remington, another Freedom Group company. But his father lives in Newtown, and in the days following the shooting, as Americans quickly turned against the firearms industry and new federal regulation of assault rifles appeared likely, Cerberus said it would sell its gun portfolio. “It is not our role to take positions, or attempt to shape or influence the gun control policy debate,” the firm said at the time.

That was December. In the intervening months, public sentiment has cooled, and a movement to restore the country’s ban on assault rifles has died. (Freedom Group sold half of the semiautomatic assault rifles in the United States in 2008, the most recent year for which such data is available.) Cerberus didn’t make much progress in selling Freedom Group until after the assault weapons ban failed, at which point it initiated a more formal auction process (paywall).

Feinberg is said to be constructing a bid for Freedom Group along with other partners at Cerberus. They want to set a “floor price” for the auction and would withdraw if a competing bid comes in at least 10% higher, according to the Wall Street Journal (paywall). Lazard is running the auction, which was initially expected to fetch at least $1 billion.

Betting on guns is dicey business. In fact, wariness of gun companies helps explain how Feinberg was able to scoop up Bushmaster, Remington, and others without much competition beginning in 2006. But the Newtown shootings at first seemed to fundamentally shift the dynamic in the United States and at Feinberg’s famously secretive firm, which appeared eager to wash any blood from its hands. Cerberus’s move to sell was seen as a PR-conscious move in the ruthless world of private equity.

So it would be quite a twist if Feinberg ended up essentially selling the gun companies to himself. He must figure that enduring a few pictures in the paper will be worth it.

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