In a move that has been in the works for some time, iconic American music company Gibson Brands Inc. filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court in Delaware on May 1, 2018. The company has been struggling with its debt load following a series of acquisitions in recent years.
A turnaround plan announced by Gibson will give some of its lenders equity ownership of the company. Gibson Brands Inc. will continue operating during the bankruptcy process and says it will be reorganizing the company around its core manufacturing business of musical instruments and pro audio products. As such, it will also be winding down the Gibson Innovations electronics segment of the business.
While Gibson is best known for its guitars, the largest part of the company has been its subsidiaries under the Gibson Innovations umbrella, which includes the Philips brand, TEAC Corporation, Onkyo Corporation (Onkyo and Pioneer brands), Cerwin Vega, and Stanton. Gibson Brands Inc. also owns professional audio manufacturer KRK Systems, piano manufacturer Baldwin Piano, and Cakewalk music software.
"Over the past 12 months, we have made substantial strides through an operational restructuring," says Gibson Brands CEO Henry Juszkiewicz (pictured above). "We have sold non-core brands, increased earnings, and reduced working capital demands. The decision to re-focus on our core business, musical instruments, combined with the significant support from our noteholders, we believe will assure the company's long-term stability and financial health."
According to the official announcement from Gibson Brands Inc., "The filings will allow the company's musical instruments and professional audio businesses to continue to design, build, sell, and manufacture legendary Gibson and Epiphone guitars, as well as KRK and Cerwin Vega studio monitors and loud speakers, without interruption. The Restructuring Support Agreement provides funding for the musical instrument and professional audio businesses, supports the company's key vendors, shippers, and suppliers, and provides for the restructuring of the company's balance sheet. Gibson will emerge from Chapter 11 with working capital financing, materially less debt, and a leaner and stronger musical instruments-focused platform that will allow the Company and all of its employees, vendors, customers and other critical stakeholders to succeed. Henry Juszkiewicz, Chairman and Chief Executive Officer of Gibson Brands, and David Berryman, Gibson's President, will each continue with the Company upon emergence from Chapter 11 to facilitate a smooth transition during this change of control transaction and to support the Company in realizing future value from its core business."
Market watchers say that the debt Gibson took on to finance the 2013 purchase of a majority stake in TEAC Corporation, and then the 2014 acquisition of consumer electronics business Royal Philips, is what created a negative financial situation it could not recover from.