Follow the Money, Wall Street Shies Away From Gun Industry

TOWNSVILLE, AUSTRALIA - AUGUST 1: Lieutenant Brent Hughes sits on top of a Bushmaster vehicle during a live fire exercise bei
TOWNSVILLE, AUSTRALIA - AUGUST 1: Lieutenant Brent Hughes sits on top of a Bushmaster vehicle during a live fire exercise being held on Townsville's High Range Training Area, on August 1, 2007 in Townsville, Australlia. Drawn from over 20 units, the 370 mainly Queensland based soldiers are part of the engineer led reconstruction Task Force Three (RTF-3) which are preparing to go to Afghanistan later this year. In preparation training for the force protection of its troops, the RTF is conducting a series of exercises at the High Range Training Area (Photo by Ian Hitchcock/Getty Images).

Whether or not the Newtown killings persuade Congress to do something, it looks like Wall Street will. Gun industry investments are suddenly toxic.

In a pattern Wall Street experts expect to see across the industry, the New York City investment group that owns the maker of the Newtown murderer's weapon has announced plans to sell all of its stake.

"We believe that this decision allows us to meet our obligations to the investors whose interests we are entrusted to protect without being drawn into the national debate that is more properly pursued by those with the formal charter and public responsibility to do so. Our thoughts and prayers are with the families and communities impacted by this tragic and devastating event." -- Cerberus Capital Management press release.

Cerberus owns the Freedom Group, a holding company for major gun manufacturers like Bushmaster, which made the Newtown killer's weapon, and Remington. A former Cerberus executive who is now CEO of the Freedom Group is a powerful official in the National Rifle Association. The company's gun makers sell 1.2 million weapons and 2.6 billion rounds of ammunition every year.

It looks like Cerberus had little choice. One of its major investors, the California Teachers' Retirement System, was threatening to pull out if Freedom Group stayed in the portfolio. You'd think a teachers fund would have gotten nervous about this investment before now.

It's not like this means gun manufacturers will be shutting down. Already, a Brazilian weapons firm is in talks about buying all or part of Freedom Group. But industry analysts think Cerberus will not get a good price for the holding company if more gun limits are put into law, even though it is twice as big as its next largest competitor, Smith & Wesson Holding Corp. (which is also facing a loss of investors).

One scenario, which becomes acutely more possible if the assault weapons ban is restored, is that Bushmaster and the other gun makers in Freedom Group's stable could be sold off in pieces and downsized, reducing output and raising prices. Now there's one story in our crazy leveraged buyout world that I would love to see.

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