A free market solution to reduce the number of guns

Posted by AzBlueMeanie:

New York City Mayor Michael Bloomberg is the most visible spokesman of Mayors Against Illegal Guns.  He is also a multi-billionaire "master of the universe" on Wall Street. There are billions of dollars more where his fortune comes from.

Mayor Bloomberg is a free market capitalist who believes in the "creative destruction" of capitalism. So here is an idea for creative destruction that will reduce the number of guns in America, from William Cohan at Bloomberg News no less. Time is ripe for moguls to buy, close gun maker:

Business moguls who favor stricter gun-control laws – among them
Bloomberg LP founder and New York City Mayor Michael Bloomberg,
financier George Soros and entertainment honcho David Geffen – are in
the special position of being able to put their money where their mouths
are, and with a single bold move can change the raging gun debate in a
way that intransigent politicians cannot.

These well-intentioned
billionaires (and others) should buy Freedom Group Inc., the world's
largest gun manufacturer, from Cerberus Capital Management, which has
put it up for sale, and literally liquidate it.

The company's
existing stockpile of guns – it has some $200 million in inventory,
according to the latest quarterly report – can be melted down and turned
into plowshares
, or at least tasteful monuments to the horrors of gun
violence, and installed in places such as Newtown, Conn.; Aurora, Colo.;
Blacksburg, Va.; Tucson; Binghamton, N.Y.; and Fort Hood, Texas.

The
idea isn't as implausible as it sounds. Cerberus, the secretive
private-equity behemoth run by Steve Feinberg (whose father lives in
Newtown), started assembling Freedom Group – the name has that
delightful Orwellian spin – in 2006. Cerberus bought Bushmaster Firearms
International (the company that manufactured the weapon used to murder
27 people in Newtown, including 20 first-graders) for $76 million, and
then Remington Arms Co. for an additional $370 million.

Freedom
Group's sales for the first nine months of 2012 and its adjusted
earnings before interest, taxes, depreciation and amortization were $677
million and $118 million, respectively. The company's total long-term
debt as of September was $652 million. In 2010, and again this year,
Cerberus, which owns 95 percent of Freedom Group, took out two dividends
totaling $248 million along with an additional $5.3 million in
management fees. It is likely that between the dividends and its
management fees, Cerberus has already taken out its initial equity
investment and then some.

In the wake of the Newtown shootings,
Cerberus – at the urging of a number of its largest institutional
investors – announced it was putting Freedom Group up for sale and
hiring Lazard Ltd. to manage the process.

So what might it cost the moguls to put the gun maker out of its misery?

* * *

Assuming that this may not be the best time to sell a major gun
manufacturer after the various tragedies, perhaps Freedom could be had
for about $800 million, or five times its expected 2012 adjusted
earnings before interest, taxes, depreciation and amortization
. After
paying off the $531 million in net debt, Cerberus and its investors
could still walk off with an additional $231 million in profit beyond
what they have already taken out.

One problem for the moguls might
well be that none of the purchase price could be financed. Not even a
sympathetic bank, such as JPMorgan Chase, which shies away from
financing "sin" companies, would be likely to provide a loan on a
company that would be immediately closed down. The $800 million would
have to come from their own deep pockets, and from like-minded
individuals who share their vision
. (I would happily contribute a few
shekels to the syndication effort.)

Here, Mr. Cohan goes all wobbly in the knees worrying about "the 3,000 or so people Freedom Group employs." Willard Mittens Romney was lionized for his vulture capitalism and hailed as a capitalist hero by free market capitalists for the "creative destruction" of businesses in bankruptcy and selling off their assets and firing their workers for profit. What are a few thousand unemployed employees to these free market capitalists? The same people who lionized Willard Mittens Romney should lionize Michael Bloomberg for his vulture capitalsim.

If it weighs on the conscience of Mayor Bloomberg and his private equity investors, "Perhaps the moguls could also pony up for the cost of retraining these
workers for other professions and for the cost of outplacement services," as Mr. Cohan suggests.

$800 million is chump change to a multi-billionaire like you, Mike. Just do it.

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