Gibson files for bankruptcy protection in turnaround deal to change owners, re-focus on guitar business

Debt-hit US iconic guitar maker Gibson Brands Inc has filed for Chapter 11 bankruptcy protection in a turn-around deal to keep the business afloat.

As reported previously in TMN, the Nashville-based company has debts of $500 million, which it describes as “a devastating financial fall”.

The deal sees its major creditors given co-ownership of the company, in return for their providing fresh funding of $135 million to keep it operating.

CEO Henry Juszkiewicz and president David Berryman will step aside and remain consultants for a year

The company will abandon its consumer-electronics lifestyle unit, which Gibson acquired from Philips, and which it blames for its woes.

It will refocus on its core business of designing, building and selling guitars as well as other brands such as Wurlitzer, Dobro, Epiphone, KRK and Cerwin Vega.

Gibson’s famous electric guitars include the Les Paul, the SG, the Flying V, the Explorer, and the ES series.

It was much sought after being used by B.B. King, Elvis Presley, Pete Townshend, Tony Iommi, David Boqie Billy Corgan, Tom Petty, Robby Krieger, Slash and Bob Weir.

Chuck Berry was buried with his beloved cherry red Gibson.

A group of bondholders led by KKR-affiliated funds and advised by investment bank PJT Partners Inc. and Paul, Weiss, Rifkind, Wharton & Garrison LLP were behind the ownership bid.

They were adamant that Juszkiewicz had to go before the company could be saved.

He had tried to sell the company or get new funds. Gibson approached 58 businesses and signed 27 non-disclosure agreements.

No one was interested: in the end. It faced the dilemma that it had not enough money to get rid of its debts, and nor was it being given extra time to explore new deals.

The new owners would not put in any money until Juszkiewicz went.

Gibson was founded in 1894 and sells 170,000 guitars each year in 80 countries.

When Juszkiewic bought it for $135 million, he tried to diversify the business by introducing audio lifestyle items as studio monitors, headphones, turntables and other musical instruments as pianos.

Customers didn’t take to the new offerings, while Gibson’s rivals were coming up with cheaper and better made guitars.

Its debts meant that it couldn’t come up with new innovations for its product and market itself to new and old customers.

In a media release issued overnight, new owners stated, “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.”