FORTUNE -- It has been nearly one year since the Sandy Hook massacre, which also means it's been nearly a year since private equity firm Cerberus Capital Management pledged to sell Freedom Group, a firearms and ammo company whose products include the Bushmaster AR-15 rifle used to kill 26 elementary school students and staff on that tragic day. The promise came in response to pressure from Cerberus investors like the California State Teachers Retirement System (CalSTRS), with investment bank Lazard (LAZ) hired to find a buyer. But, to date, Cerberus and its investors still own Freedom Group.
Late last night came news (first reported by The Financial Times) that Cerberus this week plans to offer LPs a voluntary way out of Freedom Group, via a third-party minority investment and new debt facility. Not hearing too many additional details yet, except that the new investment will come from an institutional money manager (i.e., not a family office) and that BoA Merrill Lynch (BAC) is organizing the creditor call.
It also is unclear if Cerberus will try to segregate management fees paid by investors who exit Freedom Group, so that they no longer are indirectly paying to oversee and manage the asset.
In the meantime, and obvious question: Why hasn't Cerberus sold Freedom Group yet? Not surprisingly, it is a complicated answer. Here are five major factors:
Cerberus created the single largest gun manufacturer in America, thus making it too expensive for smaller makers – like Smith & Wesson (SWHC) or Sturm Ruger (RGR) – to buy in its entirety (same . Smith & Wesson, for example, has a market cap just barely above Freedom Group's debt, let alone its equity value. Ammo maker Alliant Techsystems Inc. (ATK) is large enough, but its gunmaker acquisitions have mostly been for smaller, niche players. Foreign interest is said to have been muted by possible regulatory objections (particularly given all of Freedom Group's military and homeland security contracts).
The absence of strategic buyer would typically leave private equity interest, except that the limited universe of firms that can buy such a large asset is the same universe that raises money from public pensions like CalSTRS. In other words, they can't buy for the same reason Cerberus needs to sell. Many of those investors also are large shareholders in investment banks and other lenders, thus making it difficult to find groups to underwrite a leveraged buyout.
Cerberus has effectively returned its principal on Freedom Group via dividend recaps, so the sale question was largely about level of profit. And, in short, Cerberus wanted a lot of it. The firm told prospective buyers that it was looking at multiples of late 2012/early 2013 sales (i.e., post-Obama reelection and post-Sandy Hook, when gun sales and profits went through the roof), rather than of 2011 or early 2012 sales (when business was softer, after a brief boom that followed President Obama's original election). Freedom's EBITDA basically doubled during that time period, and few buyers wanted in at the market top – particularly given the sector's known volatility.
One theory early on was that someone like Smith & Wesson would try to buy one or two pieces of Freedom Group, such as Remington. One problem with that, however, is that Freedom is manufacturing multiple lines out of many the same factories. So to pull out one line would be logistically difficult.
When Cerberus decided to sell, it was noted that firm founder Steven Feinberg's father lives in Newtown. Discussed less is that Feinberg is a known gun enthusiast who really loves the business. That's why he proposed buying the company himself over the summer, although such a deal would have been fraught with way too many allegations of self-dealing.
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California teachers pension plans to divest of certain firearms makers.
FORTUNE -- The California State Teachers' Retirement System (CalSTRS) board yesterday voted unanimously to divest itself of investments in makers of firearms and ammunition that are illegal to purchase or own in the state of California. This includes those who produce assault rifles, "Saturday night specials" and/or high-capacity magazines. The divestiture option also was endorsed by CalSTRS chief investment officer Chris Ailman, MOREDan Primack - Jan 10, 2013 11:39 AM ET
One way to reduce mass shootings is for big institutions to stop funding the assault weapon manufacturers.
FORTUNE -- Do you know who owns more than a 6% stake in the maker of .223 Bushmaster rifles, like the one used last Friday to murder 20 first graders and seven adults in Newtown, Connecticut? California public schoolteachers.
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FORTUNE -- Nearly a decade ago, California's two largest public pension funds got into a legal battle with The San Jose Mercury News over what types of private equity investment data they should be required to disclose. The pensions, CalPERS and CalSTRS, argued that releasing fund-specific performance data would violate trade secrets, and releasing underlying portfolio company data could be devastating. The Mercury News said that MOREDan Primack - Nov 2, 2012 3:02 PM ET
CalSTRS loses a senior investment pro.
Pascal Villiger is leaving the California State Teachers' Retirement System, where he has been a private equity portfolio manager for the past four years, Fortune has learned.
His next stop is Medley Partners in San Francisco, which manages private equity investments on behalf of Jim Simons (founder of Renaissance Technologies) and family. No word yet on who will replace Villiger at CalSTRS, which manages more than MOREDan Primack - Mar 7, 2012 12:41 PM ET
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The California State Teachers' Retirement System (CalSTRS) is the nation's second-largest public pension, with around $145 billion in assets under management. So when it speaks, companies tend to listen.
But I'm not so sure that Facebook will be among those willing to sit at E.F. Teacher's knee.
CalSTRS reportedly is concerned with certain corporate governance provisions Facebook disclosed last week in its IPO filing, including those related MOREDan Primack - Feb 7, 2012 3:38 PM ET
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