Cerberus to shed its 95% stake in gun maker Freedom Group
Retailers are pulling back on sales of assault weapons and investors are abandoning gun makers’ stocks as the nation’s grief focuses on the funerals of the 20 children and six adults killed in the Sandy Hook Elementary School rampage in Newtown, Conn.
Calling the deadly assault “tragic and devastating,” private equity firm Cerberus Capital Management said Tuesday that it will sell its 95% stake in Freedom Group Inc., which makes the Bushmaster AR-15 rifle that police said was used in the attack.
The massacre was a “watershed event that has raised the national debate on gun control to an unprecedented level,” Cerberus said. Shooter Adam Lanza also killed his mother and himself.
Cerberus said it was selling the Madison, N.C., company, which also owns the Remington gun brand, because it wanted to focus on its investments instead of playing “statesmen or policymakers.” But skittish investors also may have influenced its decision.
The California State Teachers’ Retirement System said Monday that it would review its holdings in Cerberus in early January because of its link with Bushmaster. Through its investment in Cerberus, CalSTRS owns 2.4% of Freedom Group.
Bill Lockyer, the state’s treasurer, is considering whether CalSTRS and the California Public Employees’ Retirement System, the two largest public pension funds in the country, should get rid of all investments in gun manufacturers.
Retailers are also taking unprecedented steps, which they did not take after last Tuesday’s attack at a mall in Oregon; a July shooting rampage in an Aurora, Colo., theater; the January 2011 massacre in a Tucson supermarket parking lot; or other recent mass shootings.
Dick’s Sporting Goods said it removed all guns from its store near Newtown “out of respect for the victims and their families” and suspended sales of modern sporting rifles in its stores nationwide.
“In light of the tragic events,” Wal-Mart Stores Inc. said, it took down the information page for the Bushmaster Patrolman’s Carbine M4A3 rifle from its website, though it continued to sell the gun in certain stores.
Cabela’s, an outdoor products retailer, was still offering the Bushmaster AR-15 — equivalent to the M-16 military firearm — for $730 to $1,040 each on its website. But the site notes that the firearm is not available for sale at the company’s Connecticut store.
“We haven’t seen retailers do this before,” said James Chartier, an analyst with research firm Moness, Crespi, Hardt & Co. “This time, people are reacting differently.”
Meantime, security and protection firms said they are fielding more calls than ever. Sales for Bullet Blocker’s armored vests and other protective gear, for instance, quadrupled over the weekend, the Massachusetts company said.
Salt Lake City body armor maker Amendment II said a sudden swell in orders for gear to shield children caused its server to crash and production to exceed capacity.
“We never expected something so tragic to happen,” Chief Operating Officer Rich Brand said. “Now we’re trying to scramble to see what we can do. This has become our No. 1 desired product right now, and we just can’t keep up with demand.”
Weapons retailers aren’t suggesting that guns be banned, but they are questioning whether semiautomatic rifles and other high-impact weapons are appropriate in their stores, said Joe Feldman, a senior research analyst with Telsey Advisory Group.
“Every seller will be looking at their assortment of rifles and trying to reassess the right mix,” Feldman said.
Some analysts said the number and the ages of the victims made the attack especially horrifying. Others believe that Americans, tired of the complacency that often follows such massacres, are ready for action.
The chorus of politicians calling for updated restrictions also is louder.
Sen. Dianne Feinstein (D-Calif.) said she is gathering support for a bill to ban assault weapons as soon as the new Congress convenes in January. Feinstein wrote an earlier federal law prohibiting military-style rifles, but that expired in 2004.
In California, which has restricted the sale of assault weapons since 1989, Atty. Gen. Kamala D. Harris is looking to identify and close loopholes in the ban. State Sen. Leland Yee (D-San Francisco) said he was considering a number of initiatives to curb gun violence, including limits on ammunition sales and a ban on magnetic devices that speed up the rate of fire on semiautomatic rifles.
On Tuesday, state Sen. Kevin De Leon said he will introduce a bill requiring a state permit to purchase ammunition.
Sam Paredes, executive director of lobbying group Gun Owners of California, said he was certain that more gun control laws would be passed in California, where Democrats make up a two-thirds majority in both houses of the Legislature.
“We’ve got the most laws, the strongest laws and the most evasive laws, and they’re going to be pulling out the stops to sponsor even more,” he said.
In the past, gun stocks have surged after assaults like the one in Newtown. Manufacturers Smith & Wesson Holding Corp. and Sturm, Ruger & Co. Inc. outperformed the market after the Aurora shooting. President Obama’s reelection sent them on another upswing.
Gun sales have seen double-digit growth since 2006 as manufacturers rolled out innovations, according to Benchmark Research.
In Smith & Wesson’s most recent quarter, revenue soared 48% amid what Chief Executive P. James Debney called “extraordinary growth” in the industry. Background checks for buyers of the brand at retail outlets hit an all-time peak on Black Friday.
Over the weekend after the Connecticut attack, gun sales rose again in some markets. The Colorado Bureau of Investigation received a record 4,154 firearm background checks Saturday. The national background check system is experiencing similar volume, the agency said. To deal with the increase, Colorado’s InstaCheck unit had to bring in additional workers and pull employees from other departments.
But gun stocks plunged in the meantime. Smith & Wesson shares closed Tuesday down 87 cents, or 10%, at $7.79. Sturm Ruger shares lost $3.40, or 7.7%, to $40.62. Since Thursday’s close, the day before the Sandy Hook shootings, Smith & Wesson stock is down 18% and Sturm Ruger stock has fallen 15%.
Some major funds such as Vanguard Group Inc. decided to stay put. Vanguard said it was “deeply saddened by the tragedy,” but it also believes that mutual funds “are not optimal agents to address social change.”
The bulk of Smith & Wesson and Sturm Ruger holdings are index funds that are “obligated to track their index,” according to Vanguard. However, Vanguard pointed out that it also offers more than 100 domestic mutual funds that have “no direct holdings in firearm manufacturers.”
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