Jun 29, 2020

Seems Remington Arms Co. has done, or is about to do, it again. Go broke, that is.

In 2018, fresh off the filing that shed the company of the last vestiges of the Cerberus Financial crowd, a burst of optimism had people predicting Remington was “back”.

The company moved into the massive Huntsville, Alabama, facility that formerly housed a Chrysler division. The State of Alabama proudly rolled out the red carpet, tax incentives, and training programs for their newest corporate citizen, all predicated on the rosy projection that Remington would bring jobs, jobs, jobs to the area.

It never materialized. And for the past year, we’ve heard rumblings that Alabama was trying to figure out what to do about their underperforming corporate citizen.

On Friday, news leaked that Remington was once again prepping for a bankruptcy.

Preparations, according to Dow Jones and “people familiar with the matter” had already progressed to the point that the prime candidate had been identified and “advanced talks” were underway.

The potential purchaser: The Navajo Nation. If that’s the case, it’s their second attempt at acquiring Remington. They were among the interested parties in 2018.

The Navajo Nation and its 175,000 citizens may be scattered across Utah, Arizona and New Mexico, but they have formidable financial resources, along with something that could be the magic bullet missing with other potential suitors: sovereign immunity. Being a sovereign nation would help eliminate the litigation threats that have plagued Remington for almost as long as anyone cares to remember.

Remington still faces lawsuits from the victims of the Sandy Hook school shooting. The Connecticut Supreme Court ruled that the company couldn’t be sued for manufacturing the Bushmaster rifle used in the shooting, but could be sued under Connecticut’s Unfair Trade Practices Law. The claim asserts Remington knowingly and improperly marketed a gun designed for the military to civilians.

Remington appealed the case to the Supreme Court. As is now apparently standard practice for “the Roberts Court”, it declined to hear the case.

The same “people familiar with the matter” say the bankruptcy purchaser could have a chance to buy the company without the fear of the ongoing litigation.

When you look at buying gun company, the P&Ls are important, but the fact you’re inheriting the potential liabilities weighs heavily on the business evaluation.

Remington, with its recent history of litigation, might scare off a majority of today’s more image-conscious investors. The Navajo Nation, being sovereign, brings a different set of circumstances to the negotiating table, along with a boatload of cash.

We had already heard from Remington that something would be announced over the next few days. That notice said the announcement could come as early as last Monday. It will be difficult to delay announcing something much longer.

When the Dow Jones report broke on Friday, our query to Remington brought a terse response: “no comment”. Radio silence is to be expected at this point-from all interested parties.

But it seems the financial community was given far more than a hint at what was ahead. And it is no coincidence that the Navajo’s interest was apparently included in those “hints”.

So what would a Navajo acquisition look like?

With their business acumen and consultants, it probably wouldn’t look very different from most other offers price-wise. But the Nation’s unique status would introduce two variables: sovereign immunity and tribal law.

Interpreting what sovereign immunity really means, especially in a business negotiation, is an assignment I’m not equipped to complete. It is a complicated relationship between the various tribes and the federal government. While their businesses generally operate under the U.S. tax codes including taxes, there are some very notable exceptions.

Tribes under the terms of sovereign immunity are shielded from litigation much the same as states. That protection “usually extends to suits arising from a tribe’s ‘off-reservation’ or commercial activities, including the activities of an off-reservation tribal casino.”

With regard to business endeavors, federal courts, according to the American Bar Association, generally do not distinguish between “governmental” and “commercial” activities. “Numerous courts,” says the ABA in Doing Business in Indian Country: A Primer “have thus held that tribal sovereign immunity extends to tribal casinos, businesses, schools and corporations (my emphasis).”

While it’s not absolute, there’s a “strong presumption” against any waiver of that immunity, and it can only be abrogated otherwise by an “unequivocal expression” of Congress.

Tribal officials and employees acting in their official capacities and within the scope of their employment are also shielded from damage suits and requests for injunctive relief. They’re also immune from subpoena enforcement to “compel production of tribal witnesses or documents.”

This isn’t an unprecedented offer. The Navajo Nation was interested in acquiring Remington in 2018.

Former Remington officials told me their offer was strong- an all-cash deal- but was rejected because the Navaho didn’t want some of the companies and made that clear in the negotiations. If they won, those companies would be shuttered. They also made it known that should they win the bidding, they would no longer sell AR-rifles to “civilians” and would pursue smart gun technology.

In 2018, those pronouncements were deal breakers with Remington. Today, the companies primarily producing those rifles have already been shuttered - by Remington. Essentially they exist only as brands.

Whether that makes the case the Navajo Nation knew more about what needed to be done than the Remington board of directors makes for an interesting topic of discussion.

Whatever position taken on that question, one thing is certain: Remington, as it sits today, is considerably less valuable than it was in 2018, despite having shed most of its crushing $950 million dollar indebtedness. Debit is quantifiable. Legal liability is a crap shoot.

Whomever is approved by a bankruptcy court won’t be paying anything approaching the offer numbers rejected in 2018. Whether that lures back one or more of the gun companies that also expressed interest in 2018 is also a question that won’t be revealed until after a formal filing.

The Navajo Nation’s interested (we’ve had no luck getting in touch with them at this point), and their prescient intent to close down several brands would make a pretty compelling case for their business competency. Further, their financial strength should factor in with a bankruptcy judge looking to keep the company running.

Today, many traditional investors shy away from anything associated with firearms. And the fact that “traditional investors” haven’t proven particularly adept at running gun companies anywhere except into the ground may also factor into a bankruptcy court’s decision.

Interesting times, for certain.

We’ll keep you posted.

—Jim Shepherd