Cerberus Capital Management LP plans to allow some investors to sell their stakes in Freedom Group Inc. a year after the Newtown, Connecticut, school shooting that prompted Cerberus to put the gunmaker up for sale, according to two people with knowledge of the matter.
Cerberus, run by Stephen Feinberg, is in talks with an institutional money manager over an investment in Madison, North Carolina-based Freedom Group that would allow some Cerberus clients to sell their stakes, said the people, asking not to be identified because the talks are private. New York-based Cerberus is also seeking an amendment to the company’s creditor agreement that would allow the addition of a $200 million debt facility, said one of the people.
Cerberus said on Dec. 18 last year that it would seek a buyer for Freedom Group, the largest U.S. gunmaker, after a shooter four days earlier had used a rifle made by the company to kill 20 children and six staff members at Sandy Hook elementary school in Newtown. Several of the firm’s fund investors, including the California Public Employees’ Retirement System and California State Teachers’ Retirement System, called on Cerberus to sell the company.
“We’re deeply disappointed,” Chris Ailman, chief investment officer at Calstrs, said in a Bloomberg Television interview last week. “Cerberus really has made an honest effort and tried but it’s been a tough year for them. It’s a tough sale because the company has baggage.”
Cerberus held a call with creditors of Freedom Group today to discuss the amendment, which would open a route to paying fund investors who want to sell their stake in the gunmaker, said the person. Cerberus is asking creditors to ratify the change in the next few days. Freedom Group as a whole is still up for sale, according to this person.
Peter Duda, a spokesman for Cerberus at public-relations firm Weber Shandwick, declined to comment on the talks. The Financial Times reported the discussions yesterday.
The firm, which hired Lazard Ltd. (LAZ:US) to help with the sale, has struggled to find a buyer. Conversations with possible suitors to sell the entire company for about $1 billion haven’t been fruitful, according to the person, who requested anonymity to discuss private details. Feinberg in April considered buying Freedom Group from Cerberus’s fund with a group of wealthy individual investors, people familiar with the process said at the time.
“Within this industry there aren’t that many strategic buyers, so you have to look at financial buyers and then hopefully maybe a defense contractor or somebody larger would step in,” Ailman said.
Cerberus invested $157.8 million of equity in Freedom Group and held a 94 percent ownership stake, according to a May 2010 regulatory filing. The firm expanded the company through acquisitions, including the purchase of Remington Arms Co. in 2007, and named the business Freedom Group. The company is the nation’s biggest manufacturer of guns and ammunition.
Cerberus filed to take Freedom public in October 2009. It pulled the offering in April 2011 after the gun market slowed and then-Chief Executive Officer Theodore Torbeck resigned.
Business has picked up. The company expects sales of $1.25 billion to $1.28 billion this year, compared with $931.9 million last year, according to financial guidance released today. Adjusted earnings before interest, taxes, depreciation and amortization are expected to be $235 million to $240 million, compared with $156.5 million in 2012.
The Newtown massacre was the deadliest in the U.S. since 33 people died in a 2007 rampage at Virginia Polytechnic Institute and State University in Blacksburg, Virginia.
Feinberg’s father was a resident of Newtown at the time of the shooting.
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