Cerberus Offers Investors Exit from Remington

May 18 2015 | 10:43am ET

Cerberus will move Remington Outdoor into a separate financial vehicle and let investors sell their stakes in the gun maker back to the company.

Cerberus’ position in Remington, which was founded nearly 200 years ago and is among the most iconic firearms manufacturers in the world, came under fire following several mass shootings in the U.S., including Adam Lanza’s 2012 rampage in a Newtown, CT, elementary school that left 26 people dead. 

Several of the private equity firm’s institutional and public-pension investors, including California State Teachers Retirement System, have long pressured Cerberus to sell the gun maker, according to media reports. However, this has proved difficult to accomplish, according to an investor letter cited by The New York Times last week. 

“We are disappointed that we were unable to effect an outright sale of the company or other comparable transaction," Cerberus wrote in the letter, according to the Times. “Market pressures and operational difficulties, which began to significantly impact the performance of the company late in 2013, have impeded both further efforts to sell the company and our ability to provide options for our investors.”

In addition to the investor pressure, the gun industry in general has declined since fears of a surge in restrictive regulations caused a spike in purchases after the election of President Obama in 2008. However, by last year, sales were dropping – Remington’s revenues fell 28% in 2013, to $939 million, according to the Times article, while rival Smith & Wesson posted a 12-month decline in sales through January 2015 of 15%.

Another issue facing the PE firm is the relative size of Remington compared to its industry peers. Although Cerberus hoped to get at least $1 billion for the company in a sale, Remington is too large for its competitors to swallow. Sturm Ruger, for instance, is roughly the same size as Remington, while Smith & Wesson is slightly smaller. And given the poor publicity and public-investor aversion to the sector, suitors from outside the industry haven't been interested.

Remington will be removed from Cerberus’s main private equity funds and into a separate financial structure, according to the firm. Investors have thirty days to decide if they will accept the offer, which values Remington at approximately $880 million. Remington will reportedly use proceeds from a 2013 debt offering to pay for the stakes of those wishing to cash out. 

Cerberus was founded in 1992 by Steve Feinberg and William L. Richte. It has more than $25 billion in assets under management primarily deployed across distressed investing, private equity, direct lending and real estate. 

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