Saturday, February 13, 2021

American patriots, Second Amendment fans should celebrate the purchase of Colt by CZG

First, read some news about the purchase.

I must start with the proud disclaimer that I hold some stocks in CZG, the Czech Armory (Česká zbrojovka Group), a position that I doubled on Thursday.



Here is a monologue by a man who thinks that the operation (which was officially announced as completed on Thursday night, some stamps from regulators are waiting) is good news. So first, Colt is a legend, especially in Czechia.



Movies with revolvers have been superbly popular in Czechia, much like the country music in which Czechia has been a superpower. Karl May's novels and movies with Vinetou and Old Shatterhand – in a Czech cohort, the most famous Americans (that most Americans don't even know!) – may have been more popular in Czechia than in Germany. On top of that, we have the Czech Westerns and parody Westerns such as the 1964 Lemonade Joe [a warning for Americans who don't speak English too well: it is pronounced Yaw-eh].

If you need to know, Lemonade Joe is a hero in a Western who drinks the Kolaloka lemonade instead of whiskey. After some battles with the naughty guys, all of them (good and bad guys) find out to be siblings because they have the same birthmark of the size of one Mexican dollar. In this movie, they don't actually promote Colt. Instead, it's Smith & Wesson that is "hanging damn low", as the popular intimidating meme often repeats. But Colts are everywhere. Samuel Colt who became another name for the revolver (a pistol with the rotating cartridge) became another name of the revolver and it's still known among Czechs.



Czechia has been a superpower in the war industry since 1850 or so. Škoda Works, the factory here in Pilsen, was the largest factory in Austria-Hungary and tanks plus many similar things for the military have been a major part of the production for quite some time, especially during the Second World War when it was confiscated by a German business conglomerate.

I wrote lots of things to Quora about the special importance of the Czech firearms, Czech tanks (which largely allowed Germany to complete its successful operations in the first half of the war), and many related things. Even during communism, we kept our leading engineering. For example, vz 58 (Model 1958) was the Czechoslovak (and, in practice, Czech) equivalent of the Kalashnikov but it was better than Kalashnikov in many respects. Czechs were the only other communist nation that was allowed to produce rifles of its own, non-Soviet, design.

Also, CZ 75 still remains a very popular pistol in America. It was first made in 1975 which is newer than 1911 but in its epoch, it has played (and, partly, is still playing) a very similar role as Colt 1911. Incidentally, Colt 1911 appears in many Czech cultural products. It is one of the basic five-or-so weapons in the Czech PC games Mafia 1,2 (some of the videos are relevant, you will find them). Note that Colt 1911 wasn't invented by the Colt company but it gained the exclusive rights to make this famous device.

As a capitalist company, CZG was reborn in 1992 which is a bit ironic because at that time, tons of people were smashing Václav Havel for destroying the Czechoslovak weapon industry (with his pacifist and anti-independence propaganda). Paradoxically enough, it was a great time for a new capitalist viable company to be born.



The fame of CZG, the Česká zbrojovka Group, is a bit newer but it continues up to the present. BREN rifles are arguably the NATO's most standard "Kalashnikov-like rifles updated to the 21st century". The latest rumor is that the Ukrainian army plans to replace all their "Russian" Kalashnikovs by the BREN rifles. If you're interested, you may watch some YouTube video about the BREN rifles, CZ-75 pistol, and find related ones. Or you can browse the latest, 2021 product catalogues of CZG. 120+36 pages (either PDF or a web browser paper-like browsing).

These days, CZG is a much more viable company than Colt. Its sales are around $300 million a year but what's impressive is that the EBITDA profit margin is often above 20%. Colt has almost the same sales and the profit margin is sometimes equally large (in the view of recent years, CZG+Colt is really a doubling of the company) but sometimes smaller and, in the medium term, not really positive. Colt has been bankrupt a few times, most recently in 2015. This famous, previously totally private, company has become a struggling socialist dinosaur of a sort because of its dependence on friends in politics and nepotism who were unnaturally suppressing the competition. So the profitable years may be attributed to one-time successful promotion in front of the U.S. politicians. This should stop. Socialism doesn't work and the protection of domestic companies justified by warmongering and excessive nationalist rhetoric is just another type of socialism! It's a form of socialism in the sense that it supports laziness and nepotism and makes companies uncompetitive because the rhetoric effectively says that uncompetitiveness doesn't matter. A healthy weapon company simply must constantly fight (and earn money) in the purely commercial, non-military, marketplace. The whole nations that nurture laziness through the protectionist policies may fool themselves into thinking that "their guys are winning" in the short term but the whole nations ultimately lose in the long term because the inferiority of their products becomes self-evident and consequential, perhaps even on the battlefield.

The dude in the video above also points out that some other companies such as Remmington Arms were taken by totally different owners dominated by banking folks. The idea was that they don't need to know much about weapons, it's enough to look for places where things may be done more cheaply. The only problem with this strategy is that when it comes to the final results, it just fudging doesn't work at all. It's just a worshiping of some universal folks trained in management in PR who don't know anything else. But it's a big problem if you don't know anything else. To make weapons correctly, you just need to be a weapon guy. Just moving things around isn't a good strategy to make the right improvements to the weapons, pick the new models, designers, and other things. The number of people who expect big salaries for repeating the same clichés (and adopting simple recipes) about the management and P.R. is just way too high. It's the real weapon craftsmen (people capable of working with relative "technical details" which are often not as small as others might say) who decide about the success or failure of companies like CZG and Colt. The general managers and P.R. people arguably devour much more corporate money than what they bring to the companies now!

Colt companies should gain access to the CZG know-how that seems able to do things at the 20% profit margin and has no trouble in fair tenders (and succeed among the sports people, militaries, as well as individual shooters and hunters). I guess that some Colt workers will find out that they will produce CZG or very similar weapons. CZG gains the most stunning weapon brand in the world history, better and safer access to the U.S. markets (the U.S. makes 70% of the Czech company's revenue, 90% of this 70% is the civilian U.S. market), and some extra capacity. CZG itself needs to expand and has no problem to sell the products which is why its U.S. branch CZ-USA is planning to build new factories in Arkansas. Well, the Colt factories, mainly one in Hartford, Connecticut, may just replace the new factories to some extent; a conference call on Friday implied that the Arkansas construction is being delayed by 3-5 years because of the Colt acquisition. It's really a union in which one side, Colt, has the advantage in the glorious past and the access to the U.S. government tenders (which are sometimes skewed by nationalist considerations); the other side just works in the free market and especially civilian markets right now.

Note that the current capitalization of CZG is about CZK 10.5 billion, 90% or so is owned by a Czech weapon guy, René Holeček, a somewhat shy guy who plays golf etc. (It's the President and Chairman of CZG, Lubomír Kovařík, who is often shown in the photograph and most people don't seem to realize that this guy may simply be fired if René decides he wants to do it LOL.) The rest is traded as CZG at the Prague Stock Exchange and is mostly owned by small Czech investors. One stock closed at CZK 372 i.e. $17.50, just 3% in the first trading day when the completed takeover of Colt was official. You may want to buy the stock in time if you're a natural fan of such things. He will need to issue corporate bonds to have enough money for the $220 million that need to be paid for all the Colt assets. New stocks (and a dual listing at Wall Street) is also possible.

But let me return to the title. It's natural for American patriots, especially the Republican-type patriots, to feel uneasy. I've felt uneasy when Czech companies were purchased (50+ percent or 100 percent, as in the case of Škoda Auto) by foreign firms but it just worked in all the cases that survived LOL. But of course, the opposite takeover of such a famous brand is a much more thrilling event for a pro-capitalist Czech patriot like your humble correspondent; it's good for a skillful enough nation not to be in the "subordinate" role all the time. You should still understand that the Czech company is just a branch of the world that was gratefully building upon the American tradition and Czechs are as clear allies of yours as you can get (check some videos about Pompeo here in Pilsen, the celebrations of the 1945 liberation of Pilsen by the U.S. army which we still find worth celebrating every year) – and a nation that is almost certainly more fond of the old-fashioned America than the average U.S. citizen now. You're just not supposed to be angry about such a step that seems positive for both sides and for the whole – and if you are angry even in this case, it may mean that your negative attitude towards everything that is outside America is excessive and irrational, indeed.

Under the video that I embedded at the top, a user with a funny competition name (which I mentioned in the movie context) wrote an explanation why "such an acquisition was a matter of life" for Colt:
Smith N. Wesson wrote:
Colt had no other choice, they were going to fail (again) without new ownership. The only reason why Colt isn't bankrupt now is they because they re-released their Snake gun revolvers. While this is nice, it is only a 3 or 4-year band-aid to keep Colt alive. After the Snake Gun lovers get a New Python, New Cobra, etc....nobody will want their guns because they are extremely overpriced, mediocre quality, and nearly impossible to find at most gun stores. This is the same fatal mistake Colt did with the original line of snake gun revolvers. Colt can't make it by bringing back their old guns forever. They have to innovate and develop something new to gain market share.....which hasn't happened in decades.
Makes sense. But it should be great for CZG, too, for the aforementioned reasons.

No comments:

Post a Comment