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Reply #29: How Freedom Group Became the Big Shot [View All]

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Demeter Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Dec-07-11 07:40 AM
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29. How Freedom Group Became the Big Shot
http://www.nytimes.com/2011/11/27/business/how-freedom-...

...The variety of rifles and shotguns on sale here at Cabelas, the national sporting goods chain, is a testament to Americas enduring gun culture. But, to a surprising degree, it is also a testament to something else: Wall Street deal-making. In recent years, many top-selling brands including the 195-year-old Remington Arms, as well as Bushmaster Firearms and DPMS, leading makers of military-style semiautomatics have quietly passed into the hands of a single private company. It is called the Freedom Group and it is the most powerful and mysterious force in the American commercial gun industry today.

Never heard of it?

Youre not alone. Even within gun circles, the Freedom Group is something of an enigma. Its rise has been so swift that it has become the subject of wild speculation and grassy-knoll conspiracy theories. In the realm of consumer rifles and shotguns long guns, in the trade it is unrivaled in its size and reach. By its own count, the Freedom Group sold 1.2 million long guns and 2.6 billion rounds of ammunition in the 12 months ended March 2010, the most recent year for which figures are publicly available. Behind this giant is Cerberus Capital Management, the private investment company that first came to widespread attention when it acquired Chrysler in 2007. (Chrysler later had to be rescued by taxpayers). With far less fanfare, Cerberus, through the Freedom Group, has been buying big names in guns and ammo. From its headquarters on Park Avenue in Midtown Manhattan, Cerberus has assembled a remarkable arsenal. It began with Bushmaster, which until recently was based here in Maine. Unlike military counterparts like automatic M-16s, rifles like those from Bushmaster dont spray bullets with one trigger pull. But, with gas-powered mechanisms, semiautomatics can fire rapid follow-up shots as fast as the trigger can be squeezed. They are often called black guns because of their color. The police tied a Bushmaster XM15 rifle to shootings in the Washington sniper case in 2002...After Bushmaster, the Freedom Group moved in on Remington, which traces its history to the days of flintlocks and today is supplying M24 sniper rifles to the government of Afghanistan and making handguns for the first time in decades. The group has also acquired Marlin Firearms, which turned out a special model for Annie Oakley, as well as Dakota Arms, a maker of high-end big-game rifles. It has bought DPMS Firearms, another maker of semiautomatic, military-style rifles, as well as manufacturers of ammunition and tactical clothing. We believe our scale and product breadth are unmatched within the industry, the Freedom Group said in a filing last year with the Securities and Exchange Commission.

Here at Cabelas, Mark Eliason, the vice president for sales and marketing at Windham Weaponry, a new competitor of Bushmaster that was established by Bushmasters founder, surveys the racks. He estimates that roughly 20 percent of the long guns for sale here are made by Freedom Group companies. In the aisles, he examines shelf upon shelf of ammunition. About a third of it comes from the Freedom Group, he says. Thats a very large presence, Mr. Eliason says. So large, in fact, that rumors about the Freedom Group what it is, and who is behind it have been circulating in the blogosphere. Some gun enthusiasts have claimed that the power behind the company is actually George Soros, the hedge-fund billionaire and liberal activist. Mr. Soros, these people have warned, is buying American gun companies so he can dismantle the industry, Second Amendment be damned. The chatter grew so loud that the National Rifle Association issued a statement in October denying the rumors. N.R.A. has had contact with officials from Cerberus and Freedom Group for some time, the N.R.A. assured its members. The owners and investors involved are strong supporters of the Second Amendment and are avid hunters and shooters. Mr. Soros isnt behind the Freedom Group, but, ultimately, another financier is: Stephen A. Feinberg, the chief executive of Cerberus.

...Mr. Feinberg, a Princeton graduate who began his Wall Street career at Drexel Burnham Lambert, the junk bond powerhouse of Michael R. Milken fame, got into private equity in 1992. That year, he and William L. Richter founded Cerberus, which takes its name from the three-headed dog in Greek mythology that guards the gates of Hades. Today, Mr. Feinberg presides over a private empire that rivals some of the mightiest public companies in the land. Cerberus manages more than $20 billion in capital. Together, the companies it owns generate annual revenue of about $40 billion more than either Amazon or Coca-Cola last year. Why Cerberus went after gun companies isnt clear. Many private investment firms shy away from such industries to avoid scaring off big investors like pension funds. Yet, in many ways, the move is classic Cerberus. Mr. Feinberg has a history of investing in companies that other people may not want, but that Cerberus believes it can turn around. When Cerberus embarked on its acquisition spree in guns, it essentially had the field to itself...So, to keep growing, the Freedom Group has expanded its sales staff in the United States and increased its business internationally. It has sold weapons to the governments of Afghanistan, Thailand, Mexico and Malaysia, among others, and obtained new business from the United States Army, including a contract worth up to $28.2 million, to upgrade the M24 sniper weapon system...The Freedom Group had planned to go public, but backed away earlier this year when the financial markets turned turbulent. As of the end of September, the company had nearly half a billion dollars in debt, according to a third-quarter earnings report available on the Freedom Groups Web site. That includes about $225 million in debt that the company raised last year to pay itself a special dividend used to buy back preferred stock from Cerberus, according to a company prospectus filed with the S.E.C.

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