Cerberus Capital Management CEO Stephen A. Feinberg had reached a sobering conclusion: The guns had to go.

It was mid-December 2012, and 20 children and six adults had just been gunned down at Sandy Hook Elementary School in Newtown, Connecticut.

The weapon had been a Bushmaster XM15-E2S rifle – one of the military-style semiautomatics made by the company that Cerberus and Feinberg, the investment firm’s chief executive officer, were building into the nation’s largest gun manufacturer.

For three days, no word came from Feinberg or his company. Then, the normally reticent Cerberus issued a statement: Executives expressed shock at the mass shooting, extended deep condolences and vowed to sell Freedom Group, their monument to America’s gun culture.

The story might have ended there, with a quick sale at a profit, except for one thing: No one wanted Freedom Group, at least not at the $1 billion or so that Feinberg hoped to get for it.

And so for now, Feinberg is hanging onto Freedom Group, people familiar with Cerberus say. After a near-revolt among limited partners, he’s effectively bought out investors who wanted to get out of the gun business and settled in as the key financial player behind Freedom Group.

Perhaps no companies better reflect the nation’s fraught relationship with firearms than Cerberus, a private equity firm with more than $29 billion in client assets, and Freedom Group, whose brands include Bushmaster and DPMS/Panther – leading makers of the assault-style rifles that gun-control advocates want to see banned – and the storied Remington.

Bushmaster Firearms has Maine roots, having been founded in Bangor and then bought in 1976 by entrepreneur Richard Dyke. The company moved to Windham, where it manufactured firearms until 2006 when Dyke sold it to Cerberus for $70 million. Five years later, the company left Maine and is now based in North Carolina.

Feinberg, an avid hunter, is largely quiet about Freedom Group, which by its own count sold $1.01 billion worth of firearms and ammunition in 2014. He and other Cerberus executives declined to be interviewed.

Alarmed by gun violence, the ethics of profiting from firearms, or both, many financial institutions have been reconsidering investments in firearms companies. Public pension funds including the California State Teachers’ Retirement System have been particularly eager to divest, even as many mutual funds – and, by extension, many ordinary people – keep money in public manufacturers such as Sturm Ruger & Co. and Smith & Wesson Holding Corp.

Most public pension funds will no longer touch gunmakers, said David Fann, CEO at TorreyCove Capital Partners, a San Diego pension-fund adviser. “They don’t want to be linked with something that enables acts of terror and mass killings to occur.”

Until the massacre at Sandy Hook, few people on Wall Street – in fact, few people anywhere – had ever heard of Freedom Group. On the Internet, conspiracy theorists long had whispered that George Soros might be behind it. The National Rifle Association scoffed.

“The owners and investors involved are strong supporters of the Second Amendment and avid hunters and shooters,” an NRA affiliate assured gun owners on its website.


But after Sandy Hook, CalSTRS and the California Public Employees’ Retirement System both sold stakes in Sturm Ruger and Smith & Wesson. The endowment of the University of California system also jettisoned an investment in Smith & Wesson.

Then CalSTRS and the university endowment turned their attention to their investments in Freedom Group via Cerberus’s funds, people familiar with the investments said.

When Feinberg’s firm offered to effectively buy them out, both jumped at the chance. Cerberus moved its stake in Freedom Group, which by then had been rechristened Remington Outdoor Co., into a separate investment vehicle. Shareholders were paid $48.6 million as part of the move, according to company filings. Representatives af CalSTRS and the endowment declined to comment.

“Tragic mass shootings in this country have caused investors not only to avoid investments in such companies but also to demand divestment,” said Frank Morgan, president of the U.S. unit of Coller Capital, which buys and sells stakes in private equity funds via the secondary, or resale, market. “I would expect private equity firms will avoid acquiring interests in gun manufacturers.”

In the firearms business, politics – and fears of new restriction on buying guns – tend to drive sales and stock valuations. Stocks jumped immediately after Sandy Hook and climbed again after the recent mass shooting in San Bernardino, Calif.


For the moment, Feinberg has few easy options. Frank A. Savage, a friend who is a senior adviser at Lazard Ltd., was one of the few Wall Street bankers willing to help Cerberus try to find a buyer for Freedom Group. When those efforts came to naught, Feinberg asked Cerberus partners and friends to band together to make a bid, in hope of shaking out a potential buyer; he also considered trying to sell a minority stake. Neither worked. Savage declined to comment.

As of May, Cerberus valued Remington Outdoor at $880 million. Its owners now include Feinberg, Cerberus senior partners, company management and investors who decided to hang on.

While firearms stocks have been rising recently, Remington Outdoor has had problems. The company, based in Madison, North Carolina, has struggled to find new buyers for its assault-style rifles, in part because it has sold so many of those weapons already. Overall, sales plunged 26 percent in 2014 and fell 17 percent this year through September, according to company filings. Last June, Remington Outdoor replaced George Kollitides, the former Cerberus executive who had been its longtime CEO.

Even so, Feinberg – and the investors who have stuck with him – may profit from their investment. Cerberus and its clients have already recouped the $180 million they have put into the business since 2006, when Feinberg set out to build the firearms giant via a string of acquisitions, according to two people familiar with the investment. From here, whatever Cerberus makes on the nation’s largest gun company looks like pure profit.

Press Herald staff contributed to this report.

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