Sandy Hook Tragedy Forces Gun Maker Out of Cerberus' Hand

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Updated to reflect New York Comptroller and California Treasurer comments.

NEW YORK ( TheStreet) -- Private equity firm Cerberus Capital Management said on early Tuesday it would sell its investment in Freedom Group , the owner of Remington Arms guns and Bushmaster Firearms International , the maker of the semi-automatic rifle authorities say 20- year-old Adam Lanza used in a Connecticut elementary school shooting on Friday that killed 26 people, including 20 schoolchildren.

The move comes just a day after the California State Teachers' Retirement System said it would review its investment in Cerberus, given the private equity firm's controversial holding of the gun maker.

"CalSTRS investment staff immediately began reviewing our investments in private equity funds managed by Cerberus Capital Management that are invested in the Freedom Group, which manufactures firearms," Ricardo Duran, a CalSTRS spokesperson said in an e-mailed statement. Upon that review, CalSTRS found it owned a 2.4% stake in Freedom Group by way of three private equity funds run by Cerberus.

The public teachers pension fund has $154.8 billion in assets as of Oct. 31, of which $751 million are overseen by Cerberus, the statement added.

We have determined to immediately engage in a formal process to sell our investment in Freedom Group. We will retain a financial advisor to design and execute a process to sell our interests in Freedom Group, and we will then return that capital to our investors," Cerberus Capital Management said in a statement released on Tuesday.

The press release also called the Dec. 14 Sandy Hook elementary school shooting a "watershed event that has raised the national debate on gun control to an unprecedented level."

While Cerberus defended its ability to make investments on the behalf of its limited partners that fall outside of national policy debates such as gun control and the Second Amendment, it nevertheless identified a sale of the firm's Freedom Group holding as an action to take in the wake of the tragedy.

"Our thoughts and prayers are with the families and communities impacted by this tragic and devastating event," Cerberus added at the statement's closing.

Cerberus acquired Bushmaster - the manufacturer of the assault rifle alleged to have been used by Lanza - in 2006. In 2007, the private equity firm bought Remington Arms for $118 million, in a move that precipitated the formation of Freedom Group, a holding company with businesses that also include the sale of ammunition. The Bushmaster AR-15 rifle was used in a mass shooting in Aurora, Co., earlier in 2012

As of the third quarter, Freedom Group has earned net sales of $677.3 million in 2012, a 20% year-over-year increase. Roughly 60% of Freedom Group's revenue comes from gun sales, while the remainder is attributable to the sale of ammunition.