Rumor: Smith & Wesson Too Big To Fail…You Know What That Means

UPDATE: 5/5/09

This post is creating quite a stir among patriots and obots alike, so if the site is slow – deal.   I still have not been able to reach anyone at S&W to confirm or deny any of what was posted on JumpingInPools as “satire”.  I wanted to be thorough, (and my readers know I am that), and check and make sure it was just satire, BUT THE WHOLE POINT OF THE POST was NOT Smith & Wesson, BUT Cerberus and Remington and what would happen if the government takes control of Cerberus or their holdings, (including gun manufacturers), because Cerberus received TARP MONEY…just like the banks…is any of this ringing anybody’s bell?

…end update…go about your business….

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There is another rumor floating around the internet right now and I have calls and emails into Smith & Wesson to get the real story.  I was going to wait until I was actually able to confirm this story one way or another, but ended up going down a completely different path while investigating, and felt that the information revealed required immediate dispersal to the roundtable.  I will let you know as soon as I get more information about the rumor.  In the meantime, some of you may already know about the second part of this post; most will not.

Here is the rumor…

From Jumping In Pools:

Gov’t Attempting to Seize Smith & Wesson

Marie Llosander
4/29/2009

Seemingly in line with other corporate seizures, the United States government appears to be attempting to gain a majority stake in prominent firearms company Smith & Wesson.

Smith & Wesson, one of the oldest weapons company in the United States, is currently on sound economic footing. However, a clause in the 2009 Stimulus Bill calls for the federal government to seize industries and companies that are essential to the economy or ‘government function.’

The Treasury Department contacted the company in March 2009, asking to buy shares at $10 above market price. However, this offer was sharply rebuffed. Similar offers have been made to Remington.

After this rejection, the Treasury Department has declared that it will use mechanisms in the Stimulus Bill in order to override the corporate decision. Smith & Wesson’s board of executives have also been informed that this decision by the Treasury Department could not be appealed to any superior court.

Which brings us to the very interesting part of this story while I wait for confirmation from Smith & Wesson.

“Similar offers have been made to Remington.”

That statement is very interesting since Cerberus owns Remington and bought the gun manufacturer on April 5, 2007.  Who is Cerberus you ask, and what else do they own?

From Wikipedia:

Cerberus Capital Management, L.P. is one of the largest private equity investment firms in the United States. The firm is based in New York City, and run by 49-year-old financier Steve Feinberg. Former U.S. Vice President Dan Quayle has been a prominent Cerberus spokesperson and runs one of its international units.

History

Founded in 1992, Cerberus is named for the mythological three-headed dog that guarded the gates of Hades. Feinberg has stated to his employees that while the Cerberus name seemed like a good idea at the time, he later regretted naming the company after the mythological dog.^[1]

The company has been a very active acquirer of businesses over the past several years and now has sizable investments in automotive, sportswear, paper products, military services, real estate, energy, retail, glassmaking, transportation, and building products. In 2006, its holdings amounted to $24 billion.

On October 19, 2006, John W. Snow, President George W. Bush‘s second United States Secretary of the Treasury, was named chairman of Cerberus.

J. Ezra Merkin is a partner in Cerberus. Merkin invested his funds into Cerberus and its portfolio companies. His Gabriel fund invested $79 million in Chrysler, $66 million in GMAC and $67 million in Cerberus partnerships, according to year-end statements.^[2] The Gabriel Fund was a feeder fund for Bernard L. Madoff Investment Securities LLC.^[3]

Japanese bank, Aozora, a Cerberus company lost $137 million to Bernard L. Madoff Investment Securities LLC. Aozora was part of the investment group that acquired 51 percent of GMAC from General Motors. ^[4]

Chrysler

In 2007, Cerberus and about 100 other investors purchased an 80% stake in Chrysler for $7.4 billion,^[5] promising to bolster the auto maker’s performance by operating as an independent company. In 2008, the plan collapsed due to an unprecedented slowdown in the U.S. auto industry and a lack of capital.^[6] In response to questioning at a hearing before the House committee on December 5, 2008 by Rep. Ginny Brown-Waite, Chrysler President and CEO Robert Nardelli said that Cerberus’ fiduciary obligations to its other investors and investments prohibited it from injecting capital.^[6]

On March 30, 2009, it was announced that Cerberus Capital Management will lose its equity stake and ownership in Chrysler as a condition of the Treasury Department’s bailout deal, but Cerberus will maintain a controlling stake in Chrysler’s financing arm, Chrysler Financial. Cerberus will utilize the first $2 billion in proceeds from its Chrysler Financial holding to backstop a $4 billion December 2008 Treasury Department loan given to Chrysler. In exchange for obtaining that loan, it promised many concessions including surrendering equity, foregoing profits, and giving up board seats:

“In order to achieve that goal Cerberus has advised the Treasury that it would contribute its equity in Chrysler automotive to labor and creditors as currency to facilitate the accommodations necessary to affect [sic] the restructuring.”^[7]

Chrysler Financial refused to take $750 million in TARP government bailout aid because executives didn’t want to abide by executive-pay limits, and because the firm doesn’t necessarily need the money.^[8]

On April 30, 2009, Chrysler declared bankruptcy protection and announced that GMAC will become the financing source for new wholesale and retail Chrysler cars.^[9]

GMAC

Cerberus acquired 51 percent of GMAC, General Motors‘ finance arm, in 2006 for $7.4 billion.^[10] It appointed Merkin as nonexecutive Chairman.^[11]

As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it could not pay back all of its debt.^[12]

On December 10, 2008, GMAC said, “GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company’s outstanding debt and raise capital hasn’t attracted enough participation.” This was due in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC.^[13] GM stands to write-off over a billion dollars in lost residuals – which they paid up front to GMAC. GMAC’s exposure to the gap in residual values is around $3.5 billion.^[14]

In December 2008, Cerberus subsequently informed GMAC’s bondholders that the financial services company may have to file for bankruptcy if a bond-exchange plan is not approved. The company had previously said it may fail in its quest to become a bank holding company because it lacks adequate capital.^[15]

In January 2009, Merkin resigned from his chairmanship as a condition by the U.S. government.^[16] Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could get access to the bailout money.^[17] On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).

Cerberus’s investments in Chrysler and GMAC totaled about 7 percent of its assets under management.^[5]

Broken deal for United Rentals

In the summer of 2007, Cerberus agreed to buy 100% of United Rentals, the world’s largest equipment rental company and traded on the NYSE. After the credit markets began to tighten in August, Cerberus attempted to reduce the deal price. United Rentals refused to reprice the deal, and in November sued in the Delaware Court of Chancery for specific performance (i.e., a court mandate that Cerberus complete the deal). Cerberus took the position that the deal agreements capped its liability for walking away from the deal at $100 million. After a two-day trial, Delaware Chancellor William B. Chandler, III ruled for Cerberus in a closely watched decision, allowing it to pay United Rentals the agreed-upon $100 million “reverse termination fee” and terminate the merger agreement.^[18]

Notable acquisitions

• Pharmaceuticals – In December 2004, the company announced the acquisition of Bayer‘s plasma products business and renamed it Talecris Biotherapeutics.

• Paper products – The company acquired MeadWestvaco‘s paper business for $2.3B in 2005 and renamed it NewPage Corporation. Cerberus also purchased, from Georgia Pacific Corporation, its Distribution Division/Building Products and all of its associated real estate. It renamed this new company BlueLinx Holdings, based in Atlanta.

• Government Services (Military, Energy, and Food & Drug) – owns IAP Worldwide Services, which bought Johnson Controls‘ World Services division in February 2005, and Netco Government Services.

• Real Estate – Through investment affiliate Cerberus Real Estate, the company has been making direct equity, mezzanine, first mortgage, distressed and special situation investments in all asset types. It also controls Miami Beach-based LNR Property, a large real estate development and investment firm through subsidiary Riley Property. Cerberus also controls Kyo-ya, a Japan based group of entities that owns several Starwood managed assets in California, Hawaii and Florida.

• Retail – Cerberus purchased 655 of the 2,500 Albertson’s, Inc., grocery stores, forming Albertsons LLC of Boise, Idaho, in June 2006. They also had an ownership stake in the now-bankrupt Mervyn’s department stores, which was acquired from Target Corp. In June 2007, Cerberus acquired Torex Retail Plc., a retail solutions provider in troubled waters, for approximately 400 million US dollars.^[19]

• Transportation – Acquired bankrupt ANC Rental, then owner of the National and Alamo car rental chains, for $230 million in October 2003 and purchased DaimlerChrysler‘s 45% share of debis AerFinance, an aircraft leasing business, in May 2005. Complete acquisition of debis AirFinance (later renamed AerCap) was concluded in July 2005. Also acquired North American Bus Industries, Optima Bus Corporation, and Blue Bird Corp. in the bus manufacturing sector. Cerberus also owns bus companies Coach America and American Coach Lines, which were acquired from Stagecoach Group.

• Automotive – Peguform, GDX Automotive, and Chrysler.

• Financial Services – General Motors sold a 51% stake in its GMAC finance unit to an investor group led by Cerberus Capital Management in November 2006. GM expected to receive $14 billion over the next three years from the sale of General Motors Acceptance Corp. In December 2006, Cerberus acquired the Austrian bank BAWAG P.S.K. for a reported EUR3.2 billion. In August 2007, Cerberus announced that it was closing one of their mortgage companies, Aegis Mortgage. It owns half of a 9.9 % share (5%) with the Gabriel Group in Bank Leumi, purchased in 2005,^[20] but as of April 19, 2009, it was decided to sell in order to boost capital.^[21]

• Firearms – Acquired Bushmaster Firearms, Inc., from Windham, Maine native Dick Dyke for an undisclosed sum in April 2006, and purchased Remington Arms in April 2007. Under Cerberus direction, Bushmaster Firearms acquired Cobb Manufacturing, a well-respected manufacturer of large-caliber tactical rifles in August 2007. Cerberus also acquired DPMS Panther Arms^[22][23] Remington Arms acquired Marlin Firearms in January 2008.^[24][25] December 14, 2007.
• Entertainment – Acquired a group of seven television stations, Four Points Media Group, from CBS Corporation in 2007.^[26][27]

• Other holdings of the investment group include the Aozora Bank in Japan and cable operator Galaxy Cable.

• In 2007 Cerberus took over Corvest a promotional products company based out of Largo, FL with arms based in Simi Vally, Ca & Thorfare, NJ.

• In 2007 Cerberus sold a holding in Formica, Inc.

From ModernHistoryProject:

Life RemingtonArms Division CerberusCapital Division DuPontCo DuPontCo Owner USWarInd Client PryorSF Officer RockefellerPA Director

Here is the link to the list of executives of Cerberus Capital.  Take a moment, go over, and click on the links to each executive and see how they are connected to other interesting businesses.

I also ran across this interesting tidbit from the New York Observer:

Cerberus Capital Management: You Cannot Be Serious

For reasons that defy both logic and recent history, Cerberus Capital Management, a New York–based private equity firm, has purchased a controlling interest in Chrysler for nothing, while taking the German automaker Daimler off the hook for almost $20 billion in pensions and health-care benefits. The sale comes about nine years after Daimler bought Chrysler for $36 billion in hopes of restoring the company to its former glory. (The biggest joke of all is that Kirk Kerkorian, Chrysler’s then-biggest shareholder, thought Chrysler had made a bad deal, and went on to sue DaimlerChrysler. Now he’s taking a big stake in General Motors—maybe a good short sale.)

This latest sale—if you can call it that—is being hailed as a milestone in the storied history of American automaking. Chrysler, once an icon of mid-century American economic power, will become the first privately owned U.S. car company. The question for Chrysler’s new owners is simple: Why do they think they can rescue the company when Daimler, one of the world’s smartest automakers, clearly could not?

This is not just a question about Chrysler’s future; it’s a question about the entire U.S. auto industry. Chrysler was in bad shape when Daimler bought it, and has only gone south since. Meanwhile, it seems only a matter of time before the Ford Motor Company goes broke, thanks in part to William Clay Ford Jr., the great-grandson of Henry Ford, and his family counterparts, who have managed to fritter away their ancestor’s legacy.

If you are still interested in a thorough bio of Steve Feinberg and Cerberus after all that, go here.  I found it fascinating and more names that we have heard over and over before came up.

So I guess the question would be, “what does Cerberus know that we don’t know when it comes to Chrysler and Remington?”  Hopefully, I will have some sort of confirmation on the Smith and Wesson rumor soon.  Please keep in mind that if Texas passes their firearms freedom act, there will be ground-floor investment opportunities for the brand new gun companies springing up in Montana, Texas, and any other state that wants to shelter them from the feds and big business.