The owner of the Freedom Group, the gun manufacturer whose Bushmaster rifle was used in a deadly Connecticut school shooting nearly a year ago, is planning to give other investors in the company a way to cash out as an attempt to sell it has stalled.
Freedom’s parent, the investment firm Cerberus Capital Management, plans to unveil the proposal on Monday, a person briefed on the matter said on Sunday.
The plan follows a prolonged effort to sell the gun manufacturer in the aftermath of the assault at Sandy Hook Elementary School in Newtown, Conn., where Adam Lanza killed 20 first graders, six adults and then himself on Dec. 14, 2012.
Days after the shootings, the investment firm put Freedom up for sale, acknowledging the furor that had ensnared the firearm industry. It was a rare example of a private equity concern moving because of social outcry instead of making a purely hard-nosed financial decision.
Indeed, Freedom was seen as a strong investment before the shootings. The company began in 2006 as Bushmaster Firearms, then grew as its parent added several other brands, notably Remington Arms. The company has been consistently profitable over the last 12 months, reporting $31.2 million in net income for its third quarter this year.
The shares of other gun manufacturers have recovered from a brief but steep dip following the shooting last year, prompted by fears of tougher gun laws that failed to clear Congress. Shares in Smith & Wesson have risen 28 percent since then, while those in Sturm, Ruger & Company have climbed 50 percent.
But Cerberus and its advisers at the investment bank Lazard have struggled with an auction process that has not yielded any acceptable bids so far, this person said. A number of potential buyers, ranging from leveraged buyout firms to fellow gun makers, have expressed interest. These would-be bidders ran into trouble for different reasons, including an inability to secure adequate financing.
Such were the difficulties that Cerberus’ founder, Stephen A. Feinberg, considered making an offer for Freedom to help spur on the auction, people briefed on the matter have said. Mr. Feinberg, a noted gun enthusiast and hunter, ultimately declined to bid.
Now his firm is making an interim step: Let investors in its funds â€" including those eager to wash their hands of the firearm industry â€" sell their holdings. Among the most vocal of these have been public pension funds like the California State Teachers’ Retirement System, or Calstrs, and New York State’s comptroller, Thomas P. DiNapoli.
A spokesman for Calstrs acknowledged that the pension fund’s investment chief, Christopher J. Ailman, was scheduled to meet with Cerberus this week, but declined further comment.
To pay for the plan, the private equity firm will bring in a third-party investor that will take a minority stake in Freedom and provide debt financing. The planned investment would value Freedom at about $1 billion.
Though Cerberus will offer its investors an exit, it may still seek to sell Freedom, the person briefed on the matter added. Cashing out investors could offer the firm some flexibility in striking a deal, but does not radically change the auction process.
Cerberus is scheduled to brief creditors on Monday, this person said. They will need to approve the initiative, since it will add additional debt onto the gun maker.
A spokesman for Cerberus declined to comment.
News of the firm’s plans was first reported by The Financial Times.
