October 20th, 2009

Cerberus Plans IPO for Freedom Group Companies (Remington, Bushmaster, Marlin, DPMS, H&R)

If you had purchased Ruger (RGR) or Smith & Wesson (SWHC) stock after the November election, you would have seen your investment grow almost three-fold. Ruger stock now trades at over $13.00 after hitting $4.52 last fall. If Remington, Bushmaster, Marlin and other Freedom Group companies “went public”, could they ride the coat-tails of Ruger and S&W, and succeed collectively as a publicly traded stock? Cerberus, a private holding company that controls the Freedom Group, apparently thinks so.

Cerberus Freedom Group IPO

Cerberus Plans IPO for Remington and Freedom Group
A surge in gun sales has pushed the stock prices of major firearms manufacturers upwards. Will that trend continue? We can’t say. However, the money men at Cerberus Capital Management, which owns Remington, Bushmaster, Marlin, and other Freedom Group companies, have decided that the time is ripe to “go public” and start selling stock. According to a 10/19 report in the Wall Street Journal Blog, Cerberus plans an initial public offering (IPO) for its Freedom Group companies. The Freedom Group is comprised of Advanced Armament Corp., Bushmaster, Dakota Arms, DPMS, Eotac, H&R, L.C. Smith, NEF, Parker Gun, Remington Arms Company. Advanced Armament Corp. (AAC) is the latest addition to the Freedom Group collection, having been acquired just this month and placed under the Remington Military Products Division.

In its report on the pending Freedom Group IPO, the Wall Street Journal Blog cited AccurateShooter.com. When Cerberus acquired riflemaker DPMS in 2007, we wrote: “One positive aspect to Cerberus’ involvement in the gun industry is that the huge political clout Cerberus commands as the ‘rescuer’ of Chrysler Corp. should undermine efforts to ban AR-platform rifles. Cerberus is big enough to make waves in Washington. Money talks in politics and Cerberus has lots of it.”

Is the timing right for a gun-company IPO? The stock-market continues to move upward, and gun and ammunition sales remain very strong. On the other hand, the panic buying of black rifles has tapered off and AR-platform gun prices are now dropping back to “pre-panic” levels. Morever, at the end of each calendar year there are usually major stock sell-offs. That could drive down prices of Ruger and Smith & Wesson, which could dampen enthusiasm for a Freedom Group IPO. On the other hand Remington is an historic brand with a strong customer base, and Remington/Bushmaster are poised to take an increasing share of lucrative military contracts. With its new ACR (Adaptive Combat Rifle), Remington could well win the contract for the AR15’s replacement. And, even if the US military sticks with Stoner’s 50-year-old AR design, Bushmaster can fill that need, though it has strong competition from Colt and FN Herstal.

A cynical observer might say that Cerberus is simply looking to grab easy profits by “flipping” arms companies it acquired at fire-sale prices. Given the huge run-up in Ruger and S&W stock prices over the past 12 months, Cerberus may figure that investors will be hungry for Freedom Group shares. Right now may be the best time to take the Freedom Group public while gunmakers are still considered a “hot property” on Wall Street. In six months that could change.