BobCat wrote:1) A capitalist buys companies to make money. At first blush, it looks like Cerberus thinks they can make money making and selling rifles. Maybe they want to own the rifle companies just to shut them down, but that seems tin-foil-hattish.
I like that: "tin-foil-hattish."
May I borrow it from time to time?
For my part, I trust Cerberus's capitalistic interests; I harbor absolutely no conspiracy theories about any possible anti-gun motivations.
Actually, that Cerberus is acquiring Marlin (deal expected to close in about 30 days) under the Remington umbrella makes me more optimistic, and (at least for the time being) Cerberus is keeping Tommy Millner in the Remington CEO position, and the press releases say that Bob Behn will remain as president of Marlin...so no wholesale name changes or house cleaning. I admit I was less concerned overall about the Bushmaster and DPMS acquisitions, but Remington and Marlin sparked a non-quantifiable matter of history and tradition: John Marlin worked for Colt during the Civil War, and started his own company in 1870; Remington opened in 1816, and is the only U.S. manufacturer of both small-arms and ammunition. There's a proud legacy there.
In Cerberus's backyard, though--speaking of capitalism--all the financial portfolios of Remington, Marlin, Bushmaster, and DPMS combined represent little more than a rounding error for one fiscal quarter for their new holding company. Cerberus is privately held, so getting a whole picture of their operations is sketchy to us lowly gun aficionados, but even what is known of their scope is difficult to get your arms around.
Technically, Cerberus (named after the three-headed dog that guards the gates of Hades) is a hedge fund, of a type often referred to unflatteringly as a "vulture fund." There is nothing to say that they don't have long-term plans for their acquisitions, but that's not what the pattern looks like, and there's no telling whether or not old Eliphalet Remington II is doing some spinning right about now. And it not just Cerberus; similar hedge funds have grown explosively over the past decade and a half; it's just that Cerberus is the first to dip its three-headed toe into the personal firearms market.
Here's a quick attempt at trying to stretch my arms around Cerberus. It was started by its enigmatic boss, Stephen Feinberg, in 1992 with seed money of about $10 million. Fast-forward to 2007: working for Feinberg as Cerberus's chairman is John Snow, 73rd Secretary of the Treasury; chairman of global investments is former VP Dan Quayle; and the combined Cerberus companies have somewhere around 150,000 employees and a payroll larger than Exxon-Mobil's. I've seen current estimates of total assets ranging from $24 billion to over $30 billion...at least
triple what it had as recently as 2003. The combined annual sales would be around double that. Their biggest direct competitors are KKR (Kohlberg Kravis Roberts) and the Blackstone Group.
Those holdings are literally all over the place: technology, banking, real estate, retail, automobile manufacturing, textiles, military supply and services, aviation, food services and grocery stores, travel and entertainment, car rental, building materials, clothing...you name it. Cerberus owns majority interest in (among many others), Chrysler, GMAC Finance, Air Canada, the Japanese bank Aozora, ACS (Affiliated Computers Services in Dallas, a Fortune 500), Meadwestvaco's paper business (a $2.8 billion acquisition that included almost 1 million acres of land), the National and Alamo car-rental chains, etc.
Some critcs wonder whether a firm that specializes in snatching up under-capitalized companies--companies that do everything from manage hotels, run banks, provide IT outsourcing services, and manufacture car seats, shotguns, picture frames, and beer bottles--can bring to bear the right management resources to steer those companies' futures. In many of the cases--if not most--the companies became buy-out targets because their bottom lines were in trouble. Leaving the same management in place is not always a wise course of action.
On Christmas Eve, Cerberus announced it would pay United Rental an acquisition kill-fee of $100 million (Cerberus offered to take United to the dance, but changed its mind before Thanksgiving, just before it bought the corsage; United lobbied in court to force Cerberus to go through with the deal, but the court agreed a $100 million payment was fair compensation for backing out on that date to the prom).
To put this into perspective, the Remington purchase (probably the largest of Cerberus's firearm company acquisitions, but the other amounts aren't known) was valued at $118 million, plus assumption of outstanding debt. Remington's 2006 numbers showed $29.6 million in operating income, but $28 million in interest expenses.
Jim mentioned that CZ, Beretta, and Sig Sauer are big companies. To monster hedge funds the size of Cerberus, though, I'd posit that
NO maker of personal firearms is a big company. From their perspective, I could imagine that the global playing field looks like a lot of relatively small companies producing an amazingly wide array of competing products. It may be one of the few industries left essentially untouched by the last few decades of gobble-mania business mergers and acquisitions. For everything from banks to television sets, consumers have a lot of choices today, but those choices are offered by far fewer--and via mergers, far larger--companies than existed in, say, 1980. I'll even bet the last time you rented a car from Alamo, you thought it was Alamo, not Cerberus; or the last time you stayed at a Wyndham Hotel, you thought it was Wyndham, not Blackstone.
Ain't necessarily a bad thing. In fact, Remington's financial picture was not rosy, and they may have been in for a downhill struggle without Cerberus. I just don't have as much of an emotional stake--a personal feeling of history and tradition--in the ownership of Alamo Car Rental as I do Remington and Marlin.
Despite that sentiment of legacy, my earlier comment about corporate homogeneity had to do purely with the capitalistic interests of the holding companies. If we were to put on our Futurist Hats and jump forward to 2025, will it have been in the economic interest of Cerberus (who now let's say, just for grins and chuckles, owns Bushmaster, DPMS, Cobb, Olympic Arms, Remington, Marlin, H&R, Benelli, Browning, and Smith & Wesson) to spend money and resources designing, developing, manufacturing, and selling directly-competing products under the different brands, or will it have been more fiscally responsible to, say, have S&W discontinue rifle and shotgun production work and concentrate solely on handguns? And have Bushmaster pick up all the tactical rifle design and production? And have Browning and Benelli co-design and co-produce the same line of shotguns, one branded for North America, the other for international sales? I don't find that a far-flung scenario.
The good news is that, as BobCat pointed out, American entrepreneurship will never die. I'm not concerned about being able to buy a new, custom 1911 in 2025 (yep; I do still think the 1911 will be around
)...or a BobCat Arms JMB pump-action in .45-70.
But I
AM able to imagine that .45-70 cartridges would be almost impossible to come by because the worldwide firearm conglomerates decided it wasn't cost-effective to continue manufacturing that cartridge, or rifles that shoot it; or to imagine that (stealing a line from Henry Ford), I could buy, new, any modestly-priced, production handgun I wanted, just so long as it had a black polymer frame, came from one of three manufacturers, and came in one of three calibers.
Oh, and since the Big Three Firearm Makers could retool their factories a lot less expensively, relatively speaking, than all the various, small plants back in 2009 when the bill first came up under the Clinton administration, there was no real push-back from the manufacturers to the
Obama Microstamping Bill of 2014, so every firearm's "DNA" is being burned holographically onto the steel casings (no more brass: too expensive) of every round fired...which also, ultimately, made reloading far too expensive for individuals: only the large plants could accurately and legally erase the laser-etched holograph on a previously-fired casing. The Big Three had seen that as a huge upside to the Microstamping Bill--one reason there was no push-back--because it effectively removed the aftermarket for handloading and put them into complete financial control of all small-arms ammunition...
