The State of marlin Firearms - article in Rifle Magazine

[308/338]

Damcowboy Thanks for the link a good read. I have enough NH. CT leverguns at the age of 63. But I hope for the future generation of target/hunters to have the same opportunity I had to buy a great design rifle of all times.

I also hope they get their act together so I can buy a few more NIB Marlin.

TNY

[msharley]

I am no financial genus, but I have been reading up on Cerberus and what makes these investors tick and I really believe what I said in my above post is what is going on here. When they invested in the gun business it was breaking new ground for for these types of investors, so I have read that Cerberus had the field all to themselves. They started buying up companies, creating Freedom Group and then making it larger and more diversified within the gun business and preparing for the day when they would turn it loose on the stock exchange as the largest gun company in the USA and make a big return on their investment. It is a fact that they did apply for the IPO with the Securities and Exchange Commission sometime in 2010 (Just 4 short years since they first started their gun company buying binge) but that year FG's gun sales fell by 23% and by April of 2011 they withdrew their IPO, for the time being anyhow.


From Oct 2009:
A Dossier on Cerberus’s Freedom Group - Deal Journal - WSJ
Cerberus' Freedom Group guns for $200 million IPO | Reuters


From April 2011:

Freedom Group Seeks to Pull I.P.O. - NYTimes.com

One thing to remember, these guys are not manufacturers, Manufacturing guns is not in their field of expertise. Nor is there enough profit in the gun making business for them to invest for the long haul. They make money by acquisition, improvement by various means and then sale, either by taking it public or to another corporation who is in the particular business. One of the ones Cerberus has done that is interesting to me has to do with the blood plasma business. They bought Bayer's plasma business for under 100 million, renamed it Talecris and setting up blood draw stations along the US Mexican border where people could sell their blood to them for $20. They were so successful with this business that they sold it a few years later for nearly 2 billion. Of course some claimed that they created a monopoly on the blood plasma business and were selling what they were collecting for thousands of times what they paid the Mexicans for it. Still it is an example that shows what they do best.

Hey Eaglesnest,

Bloodsuckers

Later, Mark

[farmaloose]

While Marlin may not be a case study, I agree with Smlake that most all the big great US. firearms makers are GONE! the products there namesakes put out today cant hold a candle to the former firearms makers that stood for quality+craftmanship above all other things. I dont buy new guns from ANY namesake today, I buy used guns from the GREAT makers of the past+I am never dissapointed with them. Marlin is the latest to fall but it wont be the last+when yesterday is gone you cannot bring it back, sad but true.

[ggeilman]

Yup, at the "dog & pony shows" the CEO & COO of FGI would always reply "more - faster", and chuckle.

Dom

I'll bet they are not laughing now bleeding all that red ink. I hear Marlin is doing pretty well with their digital billboards on another note. At least they are putting that money to some use.

[eaglesnest]

While Marlin may not be a case study, I agree with Smlake that most all the big great US. firearms makers are GONE! the products there namesakes put out today cant hold a candle to the former firearms makers that stood for quality+craftmanship above all other things. I dont buy new guns from ANY namesake today, I buy used guns from the GREAT makers of the past+I am never dissapointed with them. Marlin is the latest to fall but it wont be the last+when yesterday is gone you cannot bring it back, sad but true.

While I have to agree that quality has slipped gradually over the decades for Marlin and others, with Remington it is a matter of degree. The Remington Marlins in one years time has allowed quality to slip more than Marlin did in 50 years. To point the finger back in time and say that this sort of change in quality is just the natural progression of quality degradation all along is not accurate and skews the real issue of QC in Ilion NY

[Ambush]

I have bought a couple of Rugers lately, a Mark III pistol and a Mini 14 their quiality was decent. I hope Marlin does come back, I do love American made products and I hate to see them go to crap,,,,

[robdh]

First, Cerberus holdings are worth somewhere between 20 and 40 BILLION dollars (since it's a private company it's hard to get exact numbers but 20 billion is probably low according to investment experts). Second, the total debt that Freedom Group has incurred with all it's purchases is approximately 500 million (according to their 3rd quarter report). That's between 2.5% and 1.25% of the total worth of Cerberus... very small potatoes for them.

They thought they saw an opportunity to make a set of investments in an under-appreciated field (firearms), that they could bundle and go public with or simply sell off for a profit. That's what these type of firms do. They then did what they also ALWAYS do, which is reorganize, and revamp, and move, like they did with Bushmaster. They don't care about the company's name, other than how much value it may add to the turn-around sale. They could care less about the employees. They care about a quick buck, period. They made a mistake, but mistakes can be written off at tax time. As soon as they can, they will dump Freedom Group at a profit and move on. It's the Wall Street way. That's how Stephen A. Feinberg took a 10 million dollar investment in 1992 and parleyed it to 20+ BILLION dollars (and his own net worth to 1+ billion). Corporate Raiding can be very profitable, if you can stomach it.

RIP Marlin

[SwampDude]

First, Cerberus holdings are worth somewhere between 20 and 40 BILLION dollars (since it's a private company it's hard to get exact numbers but 20 billion is probably low according to investment experts). Second, the total debt that Freedom Group has incurred with all it's purchases is approximately 500 million (according to their 3rd quarter report). That's between 2.5% and 1.25% of the total worth of Cerberus... very small potatoes for them.

They thought they saw an opportunity to make a set of investments in an under-appreciated field (firearms), that they could bundle and go public with or simply sell off for a profit. That's what these type of firms do. They then did what they also ALWAYS do, which is reorganize, and revamp, and move, like they did with Bushmaster. They don't care about the company's name, other than how much value it may add to the turn-around sale. They could care less about the employees. They care about a quick buck, period. They made a mistake, but mistakes can be written off at tax time. As soon as they can, they will dump Freedom Group at a profit and move on. It's the Wall Street way. That's how Stephen A. Feinberg took a 10 million dollar investment in 1992 and parleyed it to 20+ BILLION dollars (and his own net worth to 1+ billion). Corporate Raiding can be very profitable, if you can stomach it.

RIP Marlin

I agree with your genaral analysis of such ventures, Rob, but it seems the Marlin brand has suffered considerable value loss, and current operations are likely not profitable or generating meaningful cash flow. With such anemic performance, whats the attraction for potential buyers?What valuation formula would result in a price to provide huge gains for Cerberus? Do you suspect the consolidated financial results of Remington, Marlin and Bushmaster are positive enough to sell the group for a profit?

Marlin is floundering and Remington is probably not prospering. I just don't know why anyone would be inticed to buy the group at a generous price. Unless Cerberus acquired these companies at extremely low prices, I just don't see the opportunity for a big gain. Maybe the acquisition prices were extremely low; is that the key?

While Cerberus owns these companies, their financial losses are reflected in lower consolidated income tax liabilities. However, I don't see how that helps the holding company beyond reducing income tax liability in current years. It doesn't add value to the companies to be sold. Red ink is red ink, representing reduced rate of return for as long as it flows.

Why hasn't the bungling of Marlin's restructuring undermined the opportunity for Cerberus to make a killing on an IPO or disposing of Marlin standing alone? Potential buyers will look for value in terms of future profits commensurate with the investment required and the risk. Marlin doesn't look like a slam dunk at this point.

[eaglesnest]

First, Cerberus holdings are worth somewhere between 20 and 40 BILLION dollars (since it's a private company it's hard to get exact numbers but 20 billion is probably low according to investment experts). Second, the total debt that Freedom Group has incurred with all it's purchases is approximately 500 million (according to their 3rd quarter report). That's between 2.5% and 1.25% of the total worth of Cerberus... very small potatoes for them.

They thought they saw an opportunity to make a set of investments in an under-appreciated field (firearms), that they could bundle and go public with or simply sell off for a profit. That's what these type of firms do. They then did what they also ALWAYS do, which is reorganize, and revamp, and move, like they did with Bushmaster. They don't care about the company's name, other than how much value it may add to the turn-around sale. They could care less about the employees. They care about a quick buck, period. They made a mistake, but mistakes can be written off at tax time. As soon as they can, they will dump Freedom Group at a profit and move on. It's the Wall Street way. That's how Stephen A. Feinberg took a 10 million dollar investment in 1992 and parleyed it to 20+ BILLION dollars (and his own net worth to 1+ billion). Corporate Raiding can be very profitable, if you can stomach it.

RIP Marlin

Well said.

[eaglesnest]

I agree with your genaral analysis of such ventures, Rob, but it seems the Marlin brand has suffered considerable value loss, and current operations are likely not profitable or generating meaningful cash flow. With this anemic enterprise, whats the attraction for potential buyers. What valuation formula would result in a price to provide huge gains for Cerberus? Do you suspect the consolidated financial results of Remington, Marlin and Bushmaster are positive enough to sell the group for a profit?

Marlin is floundering and Remington is probably not prospering. I just don't know why anyone would be inticed to buy the group at a generous price. Unless Cerberus acquired these companies at extremely low prices, I just don't see the oppurnity for a big gain.

While Cerberus owns these companies, their financial losses are reflected in lower income tax liabilities. However, I don't see how that helps the holding company beyond reducing income tax liability in current years. It doesn't add value to the companies to be sold.

One thing that should be thought about, these types of venture capitalist are sometimes willing to take sizable risks in order to make big sums of returns. Something like what Cerberus planned had not seriously been tried in the sporting arms industry before, that being selling stock in the non-military firearm industry. They must have saw it as a wide open opportunity they would have to themselves. They do seem to make their money so they are not reckless crazy, just sometimes gambles don't pan out such as their huge investments in Chrysler and GMAC for example. I think in 2006 when they started all this that they thought by snapping up a big piece of the gun industry, repackaging it, combining it under one roof so to speak they thought they could make a killing on selling stock by now. The bad economy in 2011 , like bad weather on a picnic had other ideas...