By Greg Roumeliotis and Olivia Oran
NEW YORK, July 3 Stephen Feinberg has scrapped a
bid for the maker of the Bushmaster rifle, which his private
equity firm, Cerberus Capital Management LP, put up for a sale
after one of its guns was used in the Newtown, Connecticut
school shooting in December, a person familiar with the matter
said on Wednesday.
Freedom Group's AR-15 type Bushmaster rifle was used in the
shootings at Sandy Hook Elementary School in Newtown, where 20
children and six adults were killed. Soon after the shootings,
Cerberus said it would look for a buyer and hired investment
bank Lazard Ltd to help sell the business.
Cerberus CEO Feinberg decided to put together a consortium
to make a stalking horse offer for Freedom Group in order to
spur competition, people familiar with the matter told Reuters
Feinberg no longer sees the need to make an offer for the
gun company, because Freedom Group is in dialogue with a number
of industry players, as well as financial investors, and he
views the sale process as robust, the person said on Wednesday.
No deal has been agreed to and talks with the potential
buyers are ongoing, the person added.
Cerberus declined to comment, while Freedom Group did not
respond to a request for comment.
Banking sources had previously told Reuters that major Wall
Street firms had been unwilling to finance a bid for Freedom
Group. Feinberg's decision to drop his stalking horse bid
indicates the sale process may have turned out to be more robust
than he had expected.
The stocks of publicly traded gun makers such as Smith &
Wesson Holding Corp and Sturm Ruger & Co, which
fell after the shooting, have since recovered, and in April a
background checks bill that enjoyed broad popular support failed
in the U.S. Senate over gun control concerns.
Had the bid by Feinberg for a company that his firm owns
proceeded, it would have been a rare move in the private equity
It had the potential to raise conflict of interest issues,
as it could pit the founder's interest against those of the
investors in Cerberus funds, known as limited partners.
Among the measures that Cerberus introduced to address such
concerns were an independent committee of Freedom Group's board
of directors as well as a special shareholders' committee to
assess offers. This shareholder committee will now be disbanded,
the person familiar with the matter said.
Cerberus bought firearms maker Bushmaster in 2006 and later
merged it with other gun companies to create Freedom Group. The
company's sales rose about 20 percent to $931.9 million in 2012.
In May, Cerberus completed fundraising for its latest
flagship private equity fund, raising $2.61 billion to invest in
distressed assets, less than the $3.75 billion fundraising
target it originally had.