Colt's Cuts Role Of Handguns In Revamping
Wall Street Journal
Page A3
September 29, 1999
Byline: Paul M. Barrett; Staff Reporter of The Wall Street Journal
Colt's Manufacturing Co., the storied gun maker, is restructuring in a
way that will shrink significantly its role in producing handguns for the
consumer market.
The restructuring stems from several causes, but in one sense it
is the most drastic response so far by a major gun maker to the wave
of municipal litigation pending against the firearm industry. Lawsuits
filed by 27 cities and counties across the country specifically target
the sort of handguns that Colt's is planning to move away from.
Internal company documents show Colt's, West Hartford, Conn., is
in the process of spinning off into a separate company its
controversial project aimed at producing a high-tech "smart gun" that
can only be fired by an authorized user.
The documents also indicate the remaining core business will be
focused more narrowly on production of military small arms, an area
that Colt's has emphasized heavily over the past two years. New York
financiers Donald Zilkha and John Rigas, who control the manufacturer,
have used Colt's as a vehicle to acquire other makers of small
military arms, and the restructuring appears to be another step in
that direction. In fact, there are rumors in the gun business that
Colt's is close to a new acquisition of a rival, but those rumors
couldn't be confirmed.
While immediate plans for the company's well-known lines of
consumer handguns aren't clear from the documents that were reviewed,
the documents do show that litigation against the gun industry has
been a major concern to Colt's owners. Messrs. Zilkha and Rigas have
indicated in the past that they would consider getting out of consumer
handgun manufacturing as a way of trying to minimize their exposure to
the municipal lawsuits.
Messrs. Zilkha and Rigas didn't return telephone messages.
Steven Sliwa, chief executive of Colt's, said he is going to head the
new high-tech spinoff, which is known as iColt. Retired Gen. William Keys, a
Colt's board member, will take over the remaining core Colt's business,
focusing
on military small arms.
"Gen. Keys and I are looking forward to working together on the
two ventures and taking Colt's into the 21st century," Mr. Sliwa said.
Among major gun makers, Colt's has been among the most determined
to send signals that it wants to resolve the municipal litigation
without a protracted and expensive court fight. But a quick settlement
of the suits doesn't appear to be part of the restructuring plan, and
lawyers representing Colt's are continuing to try to get those suits
dismissed.
The commercial handgun segment of Colt's business produces about
30% of revenue but a larger share of profit, because margins are
greater in that segment than in military sales, the company documents
show. Nevertheless, Messrs. Zilkha and Rigas are said to see the
commercial handgun market as too risky to remain a major part of the
overall business.
The company has struggled financially for more than 15 years,
seeing itself surpassed by more nimble competitors in markets ranging
from law enforcement to military rifles. A Zilkha-led group bought the
company while it was in bankruptcy-court proceedings in 1994 and since
then, Colt's has won back some important U.S. military contracts for
its M-16 family of rifles, among other weapons. In December 1998,
Colt's also completed its acquisition of Saco Defense Corp., a smaller
maker of military arms, and remains in the hunt for another
acquisition in the area.
In 1998, Colt's and Saco had combined revenue of about $136
million and operating profit of $13.4 million, said a person familiar
with both companies' results.
One risk the restructuring creates is a negative reaction from
activist gun owners, who could perceive a withdrawal from the consumer
handgun market as another indication of Colt's bending to gun-control
proponents. Gun owners in New Jersey, California and other states
mounted a boycott of Colt's products last year, partly in response to
the company's development of the smart gun, which also was seen as a
manifestation of weakness in response to gun foes.
On the other hand, by spinning off iColt, Colt's may be able to
distance itself from the smart-gun controversy.
The smart gun is an effort to use microprocessor technology to
prevent the misuse of guns by children, thieves or other unauthorized
users. Colt's has developed a prototype handgun that can fire only
when the trigger is pulled by someone wearing a wristband that emits a
coded radio signal that is received by a computer microchip in the
gun's handle. Still unreliable as recently as this spring, when it was
demonstrated for The Wall Street Journal, the smart gun is ultimately
seen as a product that would appeal to middle-class consumers who
wouldn't otherwise buy a gun because of safety concerns.
Several other major gun companies, including Smith & Wesson Corp.,
a unit of Britain's Tomkins PLC, are scrambling to perfect smart-gun
models, but it remains to be seen whether the idea will succeed
commercially and whether pro-gun activists will punish companies that
identify themselves with the smart gun.
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Copyright (c) 1999 Dow Jones and Company, Inc.
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