* Move follows pressure from CalSTRS pension fund
* To return sale proceeds to investors
* Cerberus shocked at killings, says Freedom not to blame
By Greg Roumeliotis and Sakthi Prasad
Dec 18 The company whose AR-15 type Bushmaster
rifle was used in the Newtown school massacre in Connecticut
will be immediately put up for sale, its private equity owner
Cerberus Capital Management LP said on Tuesday in response to
The secretive private equity firm risked the ire of
investors, which include some of the largest U.S. public pension
funds, after its investment in Freedom Group Inc, owner of
Bushmaster Firearms International that makes the rifle, came
under public scrutiny.
The pressure on Cerberus to sell the firearms maker comes as
it seeks up to $3.5 billion from investors for its latest buyout
Late on Monday, California Treasurer Bill Lockyer asked
CalPERS and CalSTRS, the state's public pension funds and the
largest in the United States, to account for their investments
in gun manufacturers, and proposed that they sell their interest
in any company that makes guns that are illegal under
California's assault weapons ban.
California's ban includes the Bushmaster rifle.
"The Treasurer's view is that neither fund should be
invested in any company that makes guns that are illegal in this
state, especially ones that were used to kill 20 innocent
children and six innocent adults," Tom Dresslar, a spokesman for
CalSTRS, the California State Teachers' Retirement System,
said on Monday it was reviewing its investment with Cerberus in
the wake of Friday's shooting at Sandy Hook Elementary School in
"It's an unusual move by Cerberus but it was a terrible
event, so they are responding to some of their investors who are
teachers' funds. I'm sure they will be selling it at a low price
because now would not be a good time to sell the business," said
Steven Kaplan, a University of Chicago finance professor.
Cerberus filed for an initial public offering of Freedom
Group in October 2009 but withdrew the registration in April
2011, without offering a reason.
In addition to Cerberus, some gun retailers also took steps.
Dick's Sporting Goods pulled all guns from its store
closest to the site of the massacre in Newtown, Connecticut, and
suspended the sale of certain kinds of semi-automatic rifles
from its chains nationwide.
Wal-Mart Stores Inc took down an informational
website about semi-automatic Bushmaster rifles.
Cabela's Inc continued to advertise AR-15 type
Bushmaster rifles on its website, though it said the weapons
were not available for sale online or at its Connecticut store
Cerberus Institutional Partners V, Cerberus' latest buyout
fund, was seeking between $3 billion and $3.5 billion from
investors, CalPERS, the California Public Employees' Retirement
System, that has committed $400 million to the fund, said in a
report earlier this year.
Cerberus is also raising a real estate fund, Cerberus
Institutional Real Estate Partners III, according to a filing
last month with the Securities and Exchange Commission.
Founded in 1992 by Stephen Feinberg and William Richter, New
York-based Cerberus has more than $20 billion under management
and shares its name with a mythical three-headed dog which in
Greek mythology guards the entrance to the underworld.
Feinberg's father, Martin Feinberg, is a resident of
Newtown, Bloomberg reported on Tuesday, citing an interview with
him. Public records show a Martin Feinberg residing in a
retirement facility in Newtown.
Cerberus said on Tuesday it would hire a financial adviser
to sell its interests in Freedom Group and return the proceeds
The private equity firm expressed shock and grief at the
killings in Newtown but added that Freedom Group was not
"We do not believe that Freedom Group or any single company
or individual can prevent senseless violence or the illegal use
or procurement of firearms and ammunition," it said.
Cerberus bought firearms maker Bushmaster in 2006 and later
merged it with other gun companies to create Freedom Group,
which reported net sales of $677 million for the nine months
ended September, up from $565 million a year earlier.
Besides Cerberus, a few other private equity firms also have
stakes in firearms companies. Sciens Capital Management, for
example, jointly owns small arms maker Colt Defense.
In an opinion piece published on Monday in Slate magazine,
prior to the announcement by Cerberus, former New York Governor
Eliot Spitzer said pressure should be stepped up on the owners
of gun companies, like Cerberus, to change the way they operate.
"It is time to determine pension fund by pension fund who
has invested in Cerberus and bring pressure on those investors
either to get out of Cerberus or have Cerberus change the way it
runs the gun industry," Spitzer wrote. ()
GUN CONTROL DEBATE
Cerberus said the Newtown tragedy was a "watershed event"
that has raised the national debate on gun control "to an
However, it added the firm was responsible for only
investment decisions it makes on behalf of its clients and does
not play the role of "statesmen or policy makers."
"It is not our role to take positions, or attempt to shape
or influence the gun control policy debate. That is the job of
our federal and state legislators," it said.
U.S. lawmakers have not approved a major new federal gun law
since 1994, and a ban on certain semi-automatic rifles known as
assault weapons expired in 2004.
The Newtown massacre has led President Barack Obama and some
congressional leaders to reconsider what has been a largely
hands-off approach to gun control in recent years.
The percentage of Americans favoring tough gun regulations
rose significantly after the killings at the Connecticut school,
a Reuters/Ipsos poll showed on Monday. [ID: nL1E8NHBRX]