Investors, companies seek distance from gunmakers

Adam Shell and Hadley Malcolm, USA TODAY | USATODAY

NEW YORK — A major U.S. retailer that sells guns and a Wall Street investment firm that owns a company that manufactures firearms both took bold steps Tuesday to distance their brands from the intense anti-gun backlash following the shooting massacre last Friday at a Connecticut grade school.

With the national debate to stop gun violence via stricter gun laws gaining renewed urgency across the nation, private-equity firm Cerberus Capital Management said it was working on selling Freedom Group, a firearms company that it owns. One of the rifles used in the assault at the Sandy Hook Elementary School shootings that killed 26 people, including 20 children, were manufactured by Bushmaster Firearms International, one of an assortment of gun brands under the Freedom Group umbrella.

Also, the Dick's Sporting Goods chain, which has more than 500 stores in 44 states, said that "out of respect for the victims and their families" it was suspending the sale of modern sporting rifles nationwide as well as halting gun sales and displays in its store nearest to Newtown, Conn., where the shootings occurred. In a statement, Wal-Mart, another retailer that sells guns at its stores, said it had made "no change to the assortment of guns" it sells, but that it has removed an informational page about the Bushmaster .223 rifle on its website, but that it remains "dedicated to the safe and responsible sale of firearms."

Chris Goddard, president of a public relations firm that promotes consumer products, says retailers that sell guns are reacting quickly to do "what feels right," adding that they have to be "more thoughtful about how they approach these types of products."

The moves came on a day when White House press secretary Jay Carney said President Obama was pushing for a ban on assault weapons, more children killed in Newtown were laid to rest and investors fled shares of other gun makers. Shares of Smith & Wesson plunged 10% and Sturm Ruger lost almost 8% amid fears that stiffer regulations would soon engulf the industry.

Also Tuesday, despite saying Monday that it was reviewing its investment in Cerberus due to its position in Freedom Group, the California State Teachers' Retirement System, the world's largest educator-only pension fund with more than $154 billion in assets, said it would remain invested in the investment fund after learning of Cerberus' plans to sell the firearms company.

The decision of CalSTRS not to invest its position in Cerberus comes despite the fact that it has policies and a vetting process that are supposed to take into account the "risks associated with products that pose significant threats to human well-being" before an investment is made. CalSTRS also said it was now reviewing all of its gun-related investments, which include ownership of Smith & Wesson in one of its passive portfolios that track a stock index.

"Moving forward, we will work to ensure that all of our investments are taking these very important criteria into consideration," CalSTRS said in a statement.

The Cerberus and CalSTRS connection also kicked off a debate about the prudence of pension funds owning shares of companies whose products are lethal and can cause death and bodily harm. California State Treasurer Bill Lockyer said Tuesday he would like his state's two largest pension funds to sell their investments in gunmakers. The California Public Employees' Retirement Systems, or CalPERS, also has a $400 million investment in Cerberus, according to its most recent quarterly report of its private-equity holdings. CalPERS did not return a call for comment.

In a statement, Cerberus said it was "deeply saddened" by the killings and stressed that a key factor in its decision to seek a sale of Freedom Group, which it has been invested in since 2006, was to avoid being "drawn into the national debate" about gun control.

The intense national spotlight on gun control is forcing investors to rethink their investments in companies that make firearms, says Gary Kaltbaum of money management firm Kaltbaum & Associates. He says Cerberus' motivation to sell Freedom Group, which sells brands including Remington and is the self-described largest firearms maker in the U.S., was likely less about money and more about wanting a fresh break from guns.

"I think it is as simple as investors saying, 'I don't want to be associated with guns,' " says Kaltbaum, adding that "There's no question that investments in gun companies have gone down, and they are not very popular right now."

Anthony Sabino, a corporate litigator, says Cerberus' decision to sell the gunmaker was "more of a public relations move."

"Cerberus doesn't want this stake, whatever its size, showing up on its reports to investors," says Sabino. "It's more to placate public pension funds. Money is not the motivation here. Perception is."