Newtown backlash prompts Bushmaster rifle maker sale
The secretive private equity firm risked the ire of investors, which include some of the largest public pension funds, after its investment in Freedom Group, owner of Bushmaster Firearms International that makes the rifle, came under scrutiny.
The pressure on Cerberus to sell the firearms maker comes as it seeks up to $3.5 billion from investors for its latest buyout fund.
Late on Monday, California Treasurer Bill Lockyer asked CalPERS and CalSTRS, the state's public pension funds and the largest in the United States, to account for their investments in gun manufacturers, and proposed that they sell their interest in any company that makes guns that are illegal under California's assault weapons ban.
California's ban includes the Bushmaster rifle.
"The Treasurer's view is that neither fund should be invested in any company that makes guns that are illegal in this state, especially ones that were used to kill 20 innocent children and six innocent adults," Tom Dresslar, a spokesman for Lockyer said.
CalSTRS, the California State Teachers' Retirement System, said on Monday it was reviewing its investment with Cerberus in the wake of Friday's shooting at Sandy Hook Elementary School in Newtown.
"It's an unusual move by Cerberus, but it was a terrible event, so they are responding to some of their investors who are teachers' funds. I'm sure they will be selling it at a low price because now would not be a good time to sell the business," said Steven Kaplan, a University of Chicago finance professor.
Cerberus filed for an initial public offering of Freedom Group in October 2009 but withdrew the registration in April 2011, without offering a reason.
In addition to Cerberus, some gun retailers also took steps.
Dick's Sporting Goods pulled all guns from its store closest to the site of the massacre in Newtown and suspended the sale of certain kinds of semi-automatic rifles from its chains nationwide.
Walmart took down an informational website about semi-automatic Bushmaster rifles.
Cabela's continued to advertise AR-15 type Bushmaster rifles on its website, though it said the weapons were not available for sale online or at its Connecticut store location.
Cerberus Institutional Partners V, Cerberus' latest buyout fund, was seeking between $3 billion and $3.5 billion from investors, CalPERS, the California Public Employees' Retirement System, that has committed $400 million to the fund, said in a report earlier this year.
Cerberus is also raising a real estate fund, Cerberus Institutional Real Estate Partners III, according to a filing last month with the Securities and Exchange Commission.
Founded in 1992 by Stephen Feinberg and William Richter, New York-based Cerberus has more than $20 billion under management and shares its name with a mythical three-headed dog which in Greek mythology guards the entrance to the underworld.
Feinberg's father, Martin Feinberg, is a resident of Newtown, Bloomberg reported on Tuesday, citing an interview with him. Public records show a Martin Feinberg residing in a retirement facility in Newtown.
Cerberus said on Tuesday it would hire a financial adviser to sell its interests in Freedom Group and return the proceeds to investors.