Gibson files for bankruptcy

[Thumpalumpacus]

I am not the most informed person on this one. I wonder, though, why Gibson thought it could make a go of Baldwin Pianos and Instruments when Gretsch couldn't? The piano business (at least in the US) is in the tank. China builds pianos for about 17-cents apiece, or something like that. Henry J, et al., grabbed Baldwin and didn't make a dime, as far as I can tell.

Same thing with Phillips and with Onkyo.

Shoulda stuck with Gibson-logo yoga pants.

The grapevine has it that HJ doesn't take advice very well, even when it's good. This is only what I've heard from another forumite who has connections to the upper management there; it's hearsay. Outer events (robot tuners, oddball special runs with seemingly small market possibility) seem to support his hearsay (and that's what it is) -- but it's entirely possible that the outer events influenced the tale I heard, as well.

The indication is that chasing the lifestyle dragon, Henry really didn't welcome objective advice ... but only Henry can really say. The justifications he's given, for the failure of his growth goals, in a couple of recent interviews ring rather hollow to my ears, for what that's worth. He blamed poor retailing (which may be partially the case), but didn't mention online sales at all as a cause of those retailing woes, for instance. That strikes me as a startling oversight.

Why-ever he made his decisions, no one here knows, and that includes me.

[Thumpalumpacus]

Forgive the enormous post, but it was this or run a string of replies to an annoying length.

Indeed. It looks like Henry J. stays in control, but as a minority shareholder. He could be fired. My guess is that he will run the company in a very cautious manner and will retire on his own terms within a few years.

He's got a 1-year consultancy , and a warrant for 2.5% stock options within five years. I'd be doubtful he will exercise much control, myself. This sounds much more like a golden parachute to me.

How much of the company will Dave own after the BK plan is accepted?

To my limited knowledge, Dave was not forced to surrender any equity. I could well be wrong, though.

ETA: I just read that Berryman will be retained, also for a year, to aid in management transition, at the salary of $3.35 million.

- They will move manufacturing where it makes the most business sense to have it. One does not have to look at too many other big guitar makers to see what that means. Maybe keep a halo and/or set up business in the states. Could be wrong. Some companies rely on a populist 'Made in USA' tag. Don't think the numbers will support it though.

Not necessarily. The rumor mill has Yamaha interested in buying in, but it could well be that management is overseas and production stays here -- think Toyota or BMW, for instance. After all, part of the cachet Gibson sells is Made in America. Not saying your fears won't be realized, just saying that there are other ways around this. Of course, that will probably not reduce overhead. But without having to drag around the failing acquisitions, Gibson's recent price increases (assuming they don't go anywhere) would be freed up to pay down debt.

The phrase is "serves at their pleasure", not "leisure".

I stand corrected, thanks.

And yes, darn right it's their pleasure. They trust him to know how to run Gibson better than any of them do (Easy to say given that they know absolutely nothing. If they did he would be gone).

CEOs of publicly traded companies serve at the pleasure of the board. They have a salary and stock options. They have contracts. They are hired help. So now he is in a similar position.

So?

His year's contract is a consultancy, presumably to give the new ownership to find a new CEO and teach him or her the ropes, I think. I should think if they had confidence in him they would have offered him more security. <shrug>

ETA: With Berryman's retention salary being higher than HJ's, the implication is that his services will be more valuable. HJ's package looks more like a parachute no than it did to me before. Seems to me like he doesn't have the full confidence of KKR, and will have to use his consultancy very well indeed if he wishes to stay on. Again, only an opinion.

[Jazzstdnt]

Forgive the enormous post, but it was this or run a string of replies to an annoying length.



He's got a 1-year consultancy , and a warrant for 2.5% stock options within five years. I'd be doubtful he will exercise much control, myself. This sounds much more like a golden parachute to me.



To my limited knowledge, Dave was not forced to surrender any equity. I could well be wrong, though.

ETA: I just read that Berryman will be retained, also for a year, to aid in management transition, at the salary of $3.35 million.



Not necessarily. The rumor mill has Yamaha interested in buying in, but it could well be that management is overseas and production stays here -- think Toyota or BMW, for instance. After all, part of the cachet Gibson sells is Made in America. Not saying your fears won't be realized, just saying that there are other ways around this. Of course, that will probably not reduce overhead. But without having to drag around the failing acquisitions, Gibson's recent price increases (assuming they don't go anywhere) would be freed up to pay down debt.



I stand corrected, thanks.



His year's contract is a consultancy, presumably to give the new ownership to find a new CEO and teach him or her the ropes, I think. I should think if they had confidence in him they would have offered him more security. <shrug>

ETA: With Berryman's retention salary being higher than HJ's, the implication is that his services will be more valuable. HJ's package looks more like a parachute no than it did to me before. Seems to me like he doesn't have the full confidence of KKR, and will have to use his consultancy very well indeed if he wishes to stay on. Again, only an opinion.

A golden parachute is what they give you when they boot you out the door, and if it weren't in your contract they wouldn't give it.

Per the Wall Street Journal, HJ has a $2.1M per year consultant deal. Nothing was said about the contract end date. In other words he has a contract and stock deal. Kind of like a CEO. Berryman has a one-year contract for $3.35M.

That said, it is not unreasonable to expect to see HJ exit before too long. On the other hand, since the focus will be on the guitar business (which is successful, despite all the contrarian complaints found on the 'net) then who knows?

[Bluedawg]

By all reports I've seen, the guitar component of Gibson's business is still doing well ..

maybe not as well as it did 15 years ago, but still well enough that most reports have Gibson grossing around $1 billion a year


That suggests that, all things considered, their current business model for selling US made Gibsons supported by Asian Epiphones still has a good bit of life in it

My guess is the time to move production overseas is still a long ways away ... and still may never be necessary

Better QC could help even more with the US made guitars ... and in IMHO a move back to smaller dealers, especially now that GC looks like it's in trouble as well .... lower pricing could be helpful as well




If the history of Japanese guitars is anything to go by ... there's no guarantee that making guitars in Korea, Indonesia, or even China will continue to be as cost effective as it is now ....

Japanese guitars are considered as good as or better than US made guitars these days, but economic conditions in Japan have changed to the point were a Japanese made guitar can cost as much or more than a US made guitar

[Jabberwocky]

[Jabberwocky]

Source: Music Trades Magazine.

[m_d]

For what it's worth, which is nothing at all, as I know diddly squat, I think they will have to be made in the USA. There are lots of good brands made in the far east already. A guitar is not really like a drill, phone or food mixer, it is more than purely functional, and for many there is quite an emotional investment and even identity wrapped up in their choice of instrument. I think the Gibson customer wants a USA guitar. I bet the old Orville by Gibson guitars were pretty good as were the Epiphone Elitists, and even though they are highly thought of, enthusiasts aspire to own the real thing, whether that is logical or not! I certainly don't understand why Gibson can't make a massive profit on every guitar if Mark Camellone can make a living charging less than Gibson does for a bespoke instrument!

Well, some people, not many as of yet, but some, foresee a reversal of the outsourcing movement, in particular an at least partial reshoring of production, facilitated in part by new technology, as a possible next trend. Meanwhile, Trump got elected. That is a very real possibility. Personally as a consumer I also value the "made in USA" identity of Gibson. Offshoring of their production now would seem almost anachronical.

[QAman]

Gibson Guitars , which falls under the Gibson Brands holdings will do just fine. In fact, this re-org will help stabilize Gibson Guitars in the short term. The real question is what lies beyond Henrys tenure as the transfer agent.

I’ve read many stories about how people dislike Henry J - but this was a very passionate man who saved Gibson from the brink in the late eighties - and brought them to new heights.

He obviously had a long term vision for Gibson Brands and made some poor
choices along the way , as many CEO’s do - but we cannot forget that Henry is the reason Gibson Guitars ( as we know it) is still around.

I’m wishing them the best success with the re-org.

[christianm77]

In days like this I get that terrible feeling that may be I didn't do enough. I should've bought that custom shop LP last year and how about that L-5 Wes-Mo the other day. I could've done more. We all could.

Hahaha

It doesn’t matter whether the comment is serious or in jest, it’s quite wonderful.

[Doctor Jeff]

He's "been with the company a long time"? Really? He's not a manager. He owns it.

The guitar business has sales of $1B per year. How's that compare to your business?

Those others know how to make something for everyone? Well Gibson does too, they have models in all ranges. But like Martin they're known for the good stuff. It's what people expect of them. They call that "branding".

Hmmm...where to start...

Henry J is CEO--he had a 36% ownership stake. He has been with the company for 33 years, which is ancient by most company standards, other than maybe family-owned businesses. I think most people feel Gibson needs new blood at the top.

The guitar business had sales of $122 million last year (not $1 billion), per the above post. I am a partner in a small business. Our revenues are quite a bit less, but then we've never been in bankruptcy? So maybe that counts for something?

If I had been CEO, I hope I wouldn't have staked the future of the company on electronic brands like Onkyo that were big 40 years ago (full disclosure...I own an Onkyo turntable from the late 80's.), robot tuners or the Dusk Tiger. I also doubt I would have shut out longtime vendors like Dave's Guitars, some of the biggest Gibson merchants in the US.

Maybe if you include Epiphone in the Gibson equation, they make something for everyone at all prices. I like Gibsons--have had a couple--but right now they don't sell anything I would want at a reasonable market price.

[Jazzstdnt]

Hmmm...where to start...

Henry J is CEO--he had a 36% ownership stake. He has been with the company for 33 years, which is ancient by most company standards, other than maybe family-owned businesses. I think most people feel Gibson needs new blood at the top.

The guitar business had sales of $122 million last year (not $1 billion), per the above post. I am a partner in a small business. Our revenues are quite a bit less, but then we've never been in bankruptcy? So maybe that counts for something?

If I had been CEO, I hope I wouldn't have staked the future of the company on electronic brands like Onkyo that were big 40 years ago (full disclosure...I own an Onkyo turntable from the late 80's.), robot tuners or the Dusk Tiger. I also doubt I would have shut out longtime vendors like Dave's Guitars, some of the biggest Gibson merchants in the US.

Maybe if you include Epiphone in the Gibson equation, they make something for everyone at all prices. I like Gibsons--have had a couple--but right now they don't sell anything I would want at a reasonable market price.

my simple points were.

"Been with the company" is what is normally said about employees, not owner/CEOs of privately held firms.

I saw $1B in another article. I don't know about the $122M. Is that net revenue or gross?

WSJ says that they sell 20% of all guitars (I assume new) worldwide.


If you were on the new board, what would your target global market share be? Is 20% not good enough?

Their guitar business is doing fine whether you want one or not. What difference does it make in your life? Your logic is that because you don't want a L5 right now Gibson stinks?

I think it's pretty obvious to most readers that this wasn't about guitars in the main, guitar industry woes notwithstanding. It was principally about all the other stuff.

[Greentone]

I am no fan boy, but I want Gibson to succeed. I believe Gibson's post-Norlin era has been a period of overall great guitar production. Like to see it continue.

If not, there's 115 years of used product out there to choose from.

[Stringswinger]

Well, I stand corrected. If this plan is accepted by the Court, Henry J. and Dave B. are essentially selling Gibson for about 7 million to some of the creditors (with an option to buy 5% of the company back within 5 years).

What those creditors do with the Gibson brand up the road is anyone's guess. Only time will tell. All I know for sure is what I will do with my Gibson guitars (I have 8 of them at the moment), my intention being to play these fine guitars for as long as I am able.

I hope the Gibson brand does not suffer the same fate as Epiphone, Guild, D'Angelico and a few others. But business is business and the guys in suits (do corporate guys even wear suits anymore?) will be looking to cut costs. American labor is expensive. No matter, time will move on. It always does.

[Thumpalumpacus]

A golden parachute is what they give you when they boot you out the door, and if it weren't in your contract they wouldn't give it.

Per the Wall Street Journal, HJ has a $2.1M per year consultant deal. Nothing was said about the contract end date. In other words he has a contract and stock deal. Kind of like a CEO. Berryman has a one-year contract for $3.35M.

That said, it is not unreasonable to expect to see HJ exit before too long. On the other hand, since the focus will be on the guitar business (which is successful, despite all the contrarian complaints found on the 'net) then who knows?

According to the Nashville Post:

Juszkiewicz and Berryman will continue with the company after its Chapter 11 plan is approved “to facilitate a smooth transition.” Court filings show Juszkiewicz is in line for a one-year consulting role that will pay him $2.1 million in fees and give him a package of warrants to acquire up to 2.25 percent of the shares of a reorganized Gibson. Juszkiewicz also will receive $1.5 million of the proceeds from the sale of Gibson's 54 percent stake in Japanese audio electronics company TEAC. That stake is worth more than $60 million.

Berryman also stands to be paid millions in the coming year: His one-year employment agreement calls for a salary and bonus of $3.35 million and the chance to exercise warrants for up to 2.25 percent of Gibson 2.0 in the next five years.

[Emphasis added -- Thump]

A one-year consulting role is not being a CEO. Additionally, the fact that Berryman's salary is 50% more seems to indicate that HJ's services aren't considered as valuable.

[Doctor Jeff]

my simple points were.

"Been with the company" is what is normally said about employees, not owner/CEOs of privately held firms.

I saw $1B in another article. I don't know about the $122M. Is that net revenue or gross?

WSJ says that they sell 20% of all guitars (I assume new) worldwide.


If you were on the new board, what would your target global market share be? Is 20% not good enough?

Their guitar business is doing fine whether you want one or not. What difference does it make in your life? Your logic is that because you don't want a L5 right now Gibson stinks?

I think it's pretty obvious to most readers that this wasn't about guitars in the main, guitar industry woes notwithstanding. It was principally about all the other stuff.

IDK, that's how long he been with the company. Pretty straightforward.

See Jabberwocky post above. It's gross not net. From all accounts their guitar business is doing "OK," though it's hard to separate that out from the other stuff and to assume there are no obligations related to that that will impinge on the guitar business. Time will tell if it's viable in its reduced form. Henry J obviously wasn't convinced it would be--that's presumably why he wanted to diversify.

If I were on the board my goal would not be market share, because that's not a really meaningful target, but profitability. Ford is downsizing its product line now to maintain profitability at the expense of market share. That would be a reasonable model.

Like I said Gibson makes tons of LP's for the fanboys, the odd SG and Explorer, but a lot of us love them for their archtops. (Au contraire, I would love an L5, but at an MSRP of almost $10K, I'll have to pass for now.) The MSRP of the cheapest archtop on their website is $4800. Godin offers a good example for how to make high-quality archtops in North America at a reasonable price, and how to appeal to a wide swath of players.

I agree it's JMO and Gibson's success or failure won't rest on my wants and desires.

Last, but not least, cause I've really got to go and keep my own revenue stream going, I am not a big Henry J basher and I've defended him in the past. He did save the company. But as we recall from the Book of Exodus, Moses led the Israelites out of Egypt, yet was not allowed to lead them into Canaan, despite being with the company for 40 years. That task was given to Joshua, a relative newcomer to the board.

[Tal_175]

i don't think the market will bare an expensive american-made instrument. The labor costs are too high here and the older, baby-boomer population are selling their collections, not acquiring more. These forums with guys who have 25+ archtops are not representative of the market as a whole.

On the other hand, percentage of middle class population around the world is increasing. There seems to be a lot of respect for American made guitars in Asian countries. Just the increase in demand from countries like China, India, Indonesia could be more then enough to make up for the baby boomer loss.
If you think about it, 3-4 grands for a serious, quality, professional instrument with iconic history is not that much. Cheaper than how much you would pay for any other type of high end instrument except recorder.

[DRS]

According to the Nashville Post:



[Emphasis added -- Thump]

A one-year consulting role is not being a CEO. Additionally, the fact that Berryman's salary is 50% more seems to indicate that HJ's services aren't considered as valuable.

Both Henry J and Berryman have lost all control. They no longer have any ownership. That's what Chapter 11 does. They will get the multi-million dollar "consulting" salary but it is probably more of a golden parachute. They both will get a tiny ownership option (2.25%) in the re-structured company.

What sank Gibson was buying the consumer electronics companies (Philips) with borrowed money and then not realizing the liabilities. Gibson had big payouts to long term Philip employees in Europe.

I predict they will sell off everything they can but especially real estate. Will they decide to run the guitar company? The new boys are investors, not guitar manufacturers.

[Jazzstdnt]

According to the Nashville Post:



[Emphasis added -- Thump]

A one-year consulting role is not being a CEO. Additionally, the fact that Berryman's salary is 50% more seems to indicate that HJ's services aren't considered as valuable.

OK so maybe the Nashville Post is correct or maybe not.

I'd expect that it's a win-win. Henry gets paid and is the face and voice of the company so that panic doesn't set in. But they don't want him around very long and it's safe to assume that the feeling is mutual. (Alpha dogs don't take kindly to being neutered). They are probably looking for a replacement already, but it won't happen overnight.

[Jazzstdnt]

IDK, that's how long he been with the company. Pretty straightforward.

See Jabberwocky post above. It's gross not net. From all accounts their guitar business is doing "OK," though it's hard to separate that out from the other stuff and to assume there are no obligations related to that that will impinge on the guitar business. Time will tell if it's viable in its reduced form. Henry J obviously wasn't convinced it would be--that's presumably why he wanted to diversify.

If I were on the board my goal would not be market share, because that's not a really meaningful target, but profitability. Ford is downsizing its product line now to maintain profitability at the expense of market share. That would be a reasonable model.

Like I said Gibson makes tons of LP's for the fanboys, the odd SG and Explorer, but a lot of us love them for their archtops. (Au contraire, I would love an L5, but at an MSRP of almost $10K, I'll have to pass for now.) The MSRP of the cheapest archtop on their website is $4800. Godin offers a good example for how to make high-quality archtops in North America at a reasonable price, and how to appeal to a wide swath of players.

I agree it's JMO and Gibson's success or failure won't rest on my wants and desires.

Last, but not least, cause I've really got to go and keep my own revenue stream going, I am not a big Henry J basher and I've defended him in the past. He did save the company. But as we recall from the Book of Exodus, Moses led the Israelites out of Egypt, yet was not allowed to lead them into Canaan, despite being with the company for 40 years. That task was given to Joshua, a relative newcomer to the board.

I think that you speculate wildly the viability of the guitar business of Gibson, which you are free to do of course.

The Fortune 500 product companies that I worked/work for pay attention to market share because sales translate to profits. They also pay very close attention to expenses. It's not either or.

No one with Gibson archtop buying experience talks about MSRP (because they've never paid it).

Godin huh? So you're comparing small laminated cherry wood guitars to full sized carved archtop guitars made with fine spruce and maple? How is that an erudite comparison? Apples to prunes.

[Thumpalumpacus]

OK so maybe the Nashville Post is correct or maybe not.

I'd expect that it's a win-win. Henry gets paid and is the face and voice of the company so that panic doesn't set in. But they don't want him around very long and it's safe to assume that the feeling is mutual. (Alpha dogs don't take kindly to being neutered). They are probably looking for a replacement already, but it won't happen overnight.

My suspicion, and it's only a suspicion, is that they're going to give him a nice little office and tell him to cook up ideas that'll probably hit the round-file shortly thereafter ... in a sense, buying his peaceful exit.

[Stringswinger]

Having practiced a bit of Bankruptcy law, I can posit that in this realm, it ain't over till the fat lady sings (assuming the judge in this case is a fat lady ).

Sometimes the Court will not approve the filed plan, other times the petitioner will dismiss their own case (these cases can be used to buy time for a debtor) for various reasons.

Rather than speculate, I suggest we all follow the sage advice of Michel Lagrand and watch what happens.

[m_d]

I think that you speculate wildly the viability of the guitar business of Gibson, which you are free to do of course.

The Fortune 500 product companies that I worked/work for pay attention to market share because sales translate to profits. They also pay very close attention to expenses. It's not either or.

No one with Gibson archtop buying experience talks about MSRP (because they've never paid it).

Godin huh? So you're comparing small laminated cherry wood guitars to full sized carved archtop guitars made with fine spruce and maple? How is that an erudite comparison? Apples to prunes.

Regardless, there are many instances of builders charging a lot less for a comparable product in the US, Europe and Japan, not to mention the used Gibson market. Their prices are not competitive and labor costs aren't the sole factor.

[Thumpalumpacus]

Their prices are not competitive and labor costs aren't the sole factor.

Businesses price to what the market will pay, and Gibson is no different. The snark about "headstock tax" is real in the sense that over the last century, Gibson has built cachet, and they have been busy capitalizing on it. There are also rising costs in the supply chain as certification requirements become more demanding, and of course the need to pay down the losses presented by unprofitable purchases made over the last six years.

That's a lot to put on the back of a Les Paul.

[wolflen]

So in its current financial state..owing 500 million and downsizing..giving equity shares to creditors who may invest 125 million to keep things afloat..most likely will move operations to mexico or asia..depending on board of directors decisions /stock options and transfer abilities..the creditors will more than likely liquidate current inventory..may sell equipment or just move it to offshore locations..the outstanding debt will be on the books for years and will most likely be used as a write-off for equity holders taxes..whatever income does come in will be distributed to the creditors..I doubt it will be to "upgrade" gibson in any way..Im sure the collective creditors will overrule the board of directors of any plans to continue "business as usual" and eventually will take over the BofD through equity buy-outs or direct cash paymentspaying down 500 million is going to be a monster task..and a dedicated and loyal staff are a must in this kind of situation..I'm not sure Gibson has that kind of fight left..as being the "care" of the products has been missing for years..and imports have better quality and a much better price point on guitars that receive very good reviews .. whatever direction it takes it wont take long..during this year we will know

remember the board of directors in most cases are not employees but share holders who will just sell out when the stock price dives..some may not even know who les paul was .. or that he was even a real person

[Jazzstdnt]

So in its current financial state..owing 500 million and downsizing..giving equity shares to creditors who may invest 125 million to keep things afloat..most likely will move operations to mexico or asia..depending on board of directors decisions /stock options and transfer abilities..the creditors will more than likely liquidate current inventory..may sell equipment or just move it to offshore locations..the outstanding debt will be on the books for years and will most likely be used as a write-off for equity holders taxes..whatever income does come in will be distributed to the creditors..I doubt it will be to "upgrade" gibson in any way..Im sure the collective creditors will overrule the board of directors of any plans to continue "business as usual" and eventually will take over the BofD through equity buy-outs or direct cash paymentspaying down 500 million is going to be a monster task..and a dedicated and loyal staff are a must in this kind of situation..I'm not sure Gibson has that kind of fight left..as being the "care" of the products has been missing for years..and imports have better quality and a much better price point on guitars that receive very good reviews .. whatever direction it takes it wont take long..during this year we will know

remember the board of directors in most cases are not employees but share holders who will just sell out when the stock price dives..some may not even know who les paul was .. or that he was even a real person

what stock price? it's privately held.