After failure to dispose Freedom Group, Cerberus offers investors opt-out strategy

By Nicel Jane Avellana

Dec 09, 2013 01:01 AM EST

Private equity group Cerberus Capital Management has come up with a strategy that will enable investors to exit their investments in gunmaker Freedom Group, according to a report from the Financial Times. The gun manufacturer's Bushmaster rifle was the firearm used by the gunman in the shooting spree at Sandy Hook Elementary School in December 14 last year, which killed 20 children and six adults.

Four days after the tragedy, Cerberus bowed to investor pressure and said it would be selling the gunmaker. One of the investors was the California State Teachers' Retirement System, or Calstrs, which had a USD 600 million investment in the Cerberus funds that has holdings in the Freedom Group.

After a year, however, the private equity group failed to find a buyer for the unit. Instead, Cerberus said it would offer some investors in its funds the chance to sell the economic interest they hold in the gunmaker to the private equity firm. According to a Financial Times report, the arrangement would be financed by Freedom Group. The gun manufacturer would obtain more debt from an unnamed lender to fund the deal, which is crafted to lessen the political pressure placed on the investors of Cerberus from the advocates of gun control, the report said.

Calstrs Chief Investment Officer Christopher Ailman told the Financial Times, "We have not relented from our view that they should liquidate their investment in the company." However, he did say that the private equity group had conducted good faith efforts to get a buyer for the gunmaker at a price that would be in the best financial interests of the investors.

The report said initial estimates had placed the price tag of Freedom Group at USD 1 billion. However, potential acquirers stayed away from the purchase, and lenders were hesitant to fund an acquisition because of the politically sensitive nature of the deal. The funding for the proposed buyouts of investors' holdings, details of which must still be approved by creditors of the gunmaker, thought the holding of Freedom Group is valued at over USD 1 billion. 

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