Is This the End of Remington?
It likely is, at least what today's “Remington Outdoor,” formerly Freedom Group, is as an organization.
The story began, not with Remington, but with Bushmaster. Cerberus Capital Management purchased Bushmaster in 2006 for the comparatively modest sum of $70 million dollars. It is certainly modest in the grand scheme of things, for Cerberus controls some $30 billion in assets. However, there are certainly larger investment groups out there: Bain Capital has about $95 billion in assets, Berkshire Hathaway has $702 billion in assets (2017) and employs some 377,000 people.
Cerberus moved briskly to create a $1 billion gun company. It ended up being structured with massive debt. In 2014 and 2015, Remington Outdoor Company paid over $58 million in interest on that debt, doing nothing to retire any of the principle. For the nine months ending October 1, 2017, Remington Outdoor paid $45.6 million in interest. How in the world could anyone expect to make money in a competitive market with $15 million in interest paid every quarter?
The belated, Monday morning quarterback answer to this is that no one could. With the post-Trump decline in the firearms market, the unsustainable became completely short-term unsustainable: hence, the current Chapter 11 restructuring. None of this has anything to do with Remington employees, whether manufacturing staff, engineering, and so forth. It also has little to do with any notions of quality, for Remington's quality has been on the uptick for the last few years. Whether the recent 870s, 700s, the 700 Ultimate muzzleloader, or the V3 shotgun, Remington product has never been better as a generalization. Even the 783 entry-level bolt action rifle, while not a thing of beauty, is excellent product at its appealing price point. None of this is of much help when your parent company throws $15 million of your income at interest payments, or more, every quarter.
There is a great deal of speculation as to the next steps. Eventually as the process continues Cerberus will be out of the picture completely and the banks will own Remington. That means JP Morgan and Franklin Resources Group in large measure. Do you think that they have a passion for hunting and shooting sports in their blood, or do you think they just want to get as much money as possible for the property they will own? Most guess that they will quickly sell parts of Remington, or all of it if they can find the right buyer.
To be sure, many companies would be quite delighted to have Remington cease operations. Beretta, Browning, Mossberg would hardly be upset if there were no Remington shotguns to compete with. Savage, Mossberg, Weatherby, everyone that makes a bolt action rifle would not be upset if there were less choices for the consumer. Olin-Winchester and Vista (Federal Ammunition) wouldn't mind if they didn't have to compete with Remington ammunition. The top-selling lever-action rifle for February, 2018, was the Marlin Model 1895. Henry wouldn't be broken-hearted to see Marlin production disrupted.
I'm hardly suggesting that there is anything nefarious going on, or that this is a new form of Russian collusion. Remington Outdoor is the largest manufacturer of rifles and shotguns combined in the United States. Those that are trying to compete with Remington would logically appreciate any disruption in Remington's ability to supply their product.
In 1816, when Remington was founded, our flag had 18 stars and 18 stripes. In December of 1816, Indiana was admitted as the 19th state. It is with no small amount of irony that the states that were the cradle of the American firearms industry such as Connecticut and New York, the states that have historically benefited the most from the firearms industry, have now largely declared war on the 2nd Amendment and the firearms industry. It is now difficult for any firearms company to operate in these states.
It is the end of Remington as we know it today, just by the process of elimination. The only scenario where this could not be the case is if one company decided to buy all of Remington Outdoors and their many affiliated companies and locations in one mega-acquisition. That is highly unlikely, for who would want all of it, as cobbled together by Cerberus? Once we get past the “want” stage, who has the money? Most anyone will be out of fingers and toes on that one.
Surely, most would realize that Savage Arms doesn't need to learn how to make bolt-action rifles, Smith & Wesson and Sig need no help with Armalite rifles, nor does Ruger, and Mossberg is not in dire need of a line of pump shotguns. Remington has very strong components, though: Remington ammunition and Barnes bullets, for example: well run, highly regarded, and perpetually profitable. Marlin is an appealing line as well, particularly now that the lever-guns are actually made from blueprints.
Beyond that, it gets complicated in a hurry: complicated in terms of geography and complicated in terms of branding and licensing, and complicated in terms of commitments and military contracts. It also gets complicated in terms of liability, that's generally the case whether you make lawnmowers, step-ladders, or firearms. Suing has long been the American way. No one in their right mind would assume any liability for product made years ago by someone else, product they had no hand at all in manufacturing whatsoever.
It seems to me that what is now Remington Outdoor, formerly Freedom Group, will have to be sold in parcels. Part of the issue is the sheer size and scope of Remington Outdoor: over $1.2 billion in sales in 2013, $939 million in 2014, $808 million in 2015, $865 million in 2016. Despite paying $59.9 million in interest in 2016, Remington still had a profit of $21.6 million.
There are scant few entities in the firearms industry that have sales approaching that of Remington. Ruger, for example, in 2016, had sales of $664 million vs. Remington's $865 million. After the lengthy, costly, labyrinth of our court system, there will be an emergence from Chapter 11. When that happens is an open question, and who will actually own what is unknowable. It won't be the Remington of today or yesterday.
Note: The Cerberus construction of Remington forced Remington to pay $53 million in interest in 2010, $63.2 million in 2011, $51.5 million in 2012, $42.5 million in 2013, $58.6 million in 2014, $58.8 million in 2015, and $59.9 million in interest in 2016. That's $387.5 million in interest alone, nothing to do with the principal. Since 2009, interest has been choking Remington to the tune of a massive sum, rapidly approaching the staggering, if not shocking level of half a Billion dollars with a capital “B.”
Right now, no company can be expected to survive that perpetually bleeds that much money in interest. Remington Outdoors is valued at $700 million for the entire company as of March, 2018. In the last nine years, Remington was forced to pay roughly 70% of its entire value in interest. Cerberus, in 2007, purchased Remington for $370 million: that $118 million in cash as well as the assumption of $252 million of debt. Under Cerberus ownership, in ten years, the “Cerberus Plan” ended up turning Remington into a steaming $950 million debt pile. Ask yourself, with interest of $58 million or so per year for the last four years, just how many 870 Express models or cases of Gun Clubs that would be.
Copyright 2018 by Randy Wakeman. All Rights Reserved.
