This Hedge Fund Has Made a Killing on Bushmaster Assault Rifles
Mother Jones
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Last December, four days after Adam Lanza murdered 20 first graders and six educators at an elementary school in Newtown, Conn., Cerberus Capital Management pledged to sell the Freedom Group, the company that manufactured the Bushmaster XM-15 assault rifle that Lanza used. The announcement helped tamp down a rising PR disaster for the Manhattan private equity firm, placating major investors such as the California State Teachers Retirement System (CalSTRS), which had said it was “examining” its $750 million stake in Cerberus after the massacre. The New York Times described the move as “a rare instance of a Wall Street firm bending to concerns about an investment’s societal impact.”
A year after the Newtown tragedy, however, Cerberus has not sold Freedom Group (also known as Remington Outdoor Company Inc.), the nation’s largest firearms and ammunition conglomerate. After buyers failed to materialize early this year, Cerberus CEO Stephen Feinberg announced he and a small group of individuals would seek to buy the company, which also owns brands such as Remington, Marlin, and Dakota Arms. But in July, the Wall Street Journal reported that Feinberg was dropping his bid amid increasingly attractive offers from outside investors. “Cerberus initially planned to seek around $1 billion for the company,” the Journal reported, citing an anonymous source, “but now wants more.”
Business has boomed for Freedom Group in the year since the mass shooting at Sandy Hook Elementary. Between January and the end of September, the company raked in $94 million in profits on more than $1 billion in gun and ammo sales, compared with just $500,000 in net profits during the same period in 2012. For the full year ending December 31, Freedom Group estimates that its net sales will be up 34 percent to $1.25 billion, according to a financial disclosure (PDF) released Monday. Though Freedom Group doesn’t release sales figures specifically for the Busmaster XM-15 assault rifle, that weapon and similar models reportedly flew off retailers’ shelves in the weeks after Sandy Hook, snatched up by firearms enthusiasts who feared the guns would soon be outlawed.
According to the Freedom Group’s third quarter report, this year’s earnings spike came primarily from a $42 million bump in sales of “centerfire rifles,” a category which includes the XM-15. The report further notes that Freedom Group’s leading sellers were “modern sporting rifles”—the firearms industry’s euphemism for assault weapons. “Consumer concern over more restrictive governmental regulation on the federal, state, and local levels has contributed to this increase in demand,” the report says. The company would have sold even more guns, the report adds, if not for “sales demand being greater than our current production capacity in many categories.”
“We wish that this anniversary were not coming and that we were not holding Freedom Group,” said Mike Sicilia, a spokesman for CalSTRS, adding that the teachers pension fund is prohibited by its investment contract with Cerberus from discussing financial details. “It’s difficult on all of us because we represent the futures of teachers. Teachers were killed at Sandy Hook, and that gun was made by a company that we partially own. We all feel that.”
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This Hedge Fund Has Made a Killing on Bushmaster Assault Rifles
