Cerberus to sell gunmaker Freedom Group after shootings

NEW YORK, Tue Dec 18, 2012 — U.S. private equity firm Cerberus Capital Management said on Tuesday it will immediately begin selling its investment in gunmaker Freedom Group in light of last week’s school shooting in Connecticut.

Pressure mounted on Cerberus as the California State Teachers’ Retirement System said on Monday it was reviewing its investment with the private equity firm after the Connecticut school shooting.

CalSTRS had invested $751.4 million with Cerberus by the end of March 2012, according to its website.

Cerberus acquired firearms maker Bushmaster in 2006 and later merged it with other gun companies to create Freedom Group, which reported net sales of $677.3 million for the nine months ending September 2012, up from $564.6 million in the same period a year ago.

Bushmaster is the manufacturer of the AR 15 rifle used by the shooter in the Newtown, Connecticut killings that claimed 27 lives, including 20 school children.

The private equity firm said it will retain a financial adviser to sell its interests in Freedom Group, and will then return that capital to investors.

Founded in 1992 by Stephen Feinberg and William Richter, New York-based Cerberus has more than $20 billion under management invested and shares its name with a mythical three-headed dog that in Greek mythology guards the entrance to the underworld.

Innkeepers, Cerberus reach tentative sale pact at lower price

NEW YORK ― Cerberus Capital Management Chatham Lodging Trust have reached a tentative agreement to buy bankrupt Innkeepers USA Trust at a lower price than in an earlier deal that fell apart, a source close to the talks said.

Cerberus and Chatham would acquire 64 of the bankrupt hotel operator’s properties for about $1 billion in a transaction that could become official as soon as Thursday, according to the person, who spoke anonymously because talks are private.

The parties are confident the deal will get done, though it is not official and could still unravel, the person said.

The agreement would avoid a trial scheduled for next week over a decision by Cerberus and Chatham to walk away from a previous agreement to buy the same 64 hotel properties for $1.12 billion.

The discounted purchase price would still be higher than the initial $971 million baseline, or “stalking horse,” bid offered by Five Mile Capital Partners and Lehman Ali Inc., a non-bankrupt unit of Lehman Brothers Holdings Inc.

Innkeepers declined to comment on Thursday. A spokesman for Cerberus also declined to comment.

The prior deal fell apart in August, when Cerberus and Chatham invoked a so-called material adverse event clause, which they contended allowed them to back out if an event occurred that could adversely affect Innkeepers’ business.

They said downgrades in the lodging sector, weakening hotel asset sales, and a 30 percent to 40 percent decline in the shares of competing hotel operators contributed to the decision.

The move sent chills through the hotel industry and contributed to fears of a double-dip recession. But in pretrial court filings, Innkeepers, which operated 72 hotels under the Hilton, Marriott and other brands, said its business was stable and its hotels had performed “at or near budget.”

It said its buyers used the clause as a pretext to negotiate a lower price.

The lawsuit brought by Innkeepers, which sought to force the buyers to close on the sale, was initially slated for trial last Monday, but the sides delayed opening arguments four times as an 11th-hour settlement progressed.

Carlyle, Cerberus, Platinum eye Cooper Standard, according to sources

NEW YORK ― Carlyle Group, Cerberus Capital Management and Platinum Equity are among the private equity firms interested in buying U.S. auto parts maker Cooper Standard , but tough financing markets make a deal uncertain, people familiar with the matter said.

Cooper Standard, which has hired JPMorgan Chase and Lazard Ltd to explore a sale, is in the second round of the auction, which has been moving slowly in a volatile financing market, one of the people said.

While financing remains relatively cheap for companies with strong credit ratings, buyout deals typically need leveraged loans and high-yield bonds — the riskier form of lending that carries some of the highest interest rates and often is the first financing to be withdrawn when credit tightens.

Representatives for Carlyle, Cerberus and Platinum Equity all declined to comment. Cooper was not immediately available for comment.

Wall Street banks are becoming more selective about what financing deals they commit to or are stiffening lending terms, making buyout deals like Cooper Standard more costly for buyers and therefore limiting their ability to pay.

The company emerged from bankruptcy in May 2010 under the control of a handful of hedge funds, including Silver Point Capital and Oak Hill Advisors. The Novi, Michigan-based company, which makes body sealing systems and fluid handling systems for the automotive industry, could be valued at more than $1.5 billion, several people told Reuters previously.

Meanwhile, Carlyle is also bidding for another auto parts supplier TI Automotive, which competes with Cooper Standard in the fluid system segment and has been considering a sale since early this year, people familiar with the matter said on Sept. 29. Bain Capital and London-based buyout firm Pamplona Capital Management are the other remaining bidders for TI Automotive, the people said at that time.

TI Automotive and Cooper Standard are the world’s two largest suppliers of systems that control, sense and deliver fluids and vapors in vehicles. But TI has greater exposure to the fast-growing Asian markets, drawing roughly a quarter of its revenue from China and other Asian markets.

Innkeepers USA Trust, Cerberus set for bankruptcy trial

NEW YORK ― Innkeepers USA Trust will try to persuade a judge to force would-be buyers to proceed with their planned $1.12 billion acquisition of some of its hotels as a trial begins on Monday in a U.S. bankruptcy court.

Innkeepers, the bankrupt operator of 72 hotels under Hilton, Marriott and other brands, sued Cerberus Capital ManagementChatham Lodging Trust in August. Earlier that month, Cerberus and Chatham backed out of a joint venture agreement to buy 64 of Innkeepers’ properties.

U.S. Bankruptcy Judge Shelley Chapman in Manhattan agreed to start the three-day trial on Monday even though the court is mostly closed for the Columbus Day holiday.

Innkeepers had pushed for a quick trial as it hopes to get back on its feet in time to maximize its sale value and pay back its creditors.

Cerberus and Chatham invoked a “material adverse event” clause in the sale deal that allowed them to walk away if something happened that could materially alter Innkeepers’ business.

In pretrial court filings, Innkeepers said no such event had taken place.

“Innkeepers is stable and … Innkeepers’ hotels have performed at or near budget,” the company said. “These hotels’ brightest days are ahead of them.”

Cerberus and Chatham argued in court documents that the purchase agreement allowed them to terminate the deal for any event likely to damage Innkeepers’ business in the future.

In pretrial court documents outlining why the deal collapsed, the firms cited analysts’ downgrades in the lodging sector, weakening hotel asset sales, and 30 percent to 40 percent declines in competing hotel operators’ shares.

Innkeepers said its buyers used the material adverse event clause as an excuse to try to renegotiate the sale price.

The hotel operator filed for bankruptcy protection in July 2010, saying its debt load had made it too difficult to keep up its properties.

Cerberus ends deal to buy innkeepers’ hotels on ‘adverse effect’

NEW YORK ― Cerberus Capital Management LP and Chatham Lodging Trust terminated their agreement to buy 64 hotels from Innkeepers USA Trust for $1.1 billion, citing a possible adverse change in the business.

The firms agreed to the transaction in June as part of Innkeeper’s bankruptcy reorganization. At an auction in May, they placed the winning bid for the largest group of Innkeepers’ hotels, topping an offer from a unit of Lehman Brothers Holdings Inc. and Five Mile Capital Partners LLC.

Cerberus, based in New York, and Chatham of Palm Beach, Fla., invoked what is known as a material adverse effect clause in their purchase agreement, they said today in a statement. The clause allows them to back out of the deal in the occurrence of a “condition, change or development that could reasonably be expected to have a material adverse effect” on conditions including Innkeepers’ business and financial position, according to the statement.

The announcement disrupts Innkeepers’ exit from Chapter 11 after a judge previously signed off on a plan that has creditors’ approval. Officials for Cerberus, Chatham and Innkeepers couldn’t immediately be reached for comment.

Innkeepers owns 71 hotels in 20 U.S. states and the District of Columbia, including Residence Inns by Marriott and Hampton Inns, according to a July 19 statement. On July 14, Chatham completed the acquisition of five hotels comprising 764 rooms from Innkeepers for $195 million in cash, a deal that isn’t affected by today’s decision.