Is Gibson, a Totem of Guitar Godhead, Headed for Chapter 11?
Gibson, what happened?
There’s been talk of bankruptcy swirling around Gibson, the venerated Nashville-based guitar company, which takes in more than $1.2 billion in annual revenue but is more than $500 million in debt. Buzzards are circling. Kohlberg Kravis Roberts, the private equity giant, is a bondholder. Blackstone is also a major lender.
Gibson’s problems are not hard to diagnose. The company’s longtime chief executive, Henry Juszkiewicz, wanted to diversify by turning Gibson into what he has called a “music lifestyle company” — basically a consumer electronics business that sells headphones and hi-fis as well as guitars. He made a splashy purchase of the audio and home entertainment division of Netherlands-based Royal Philips in 2014, and then ran headlong into the collapse of the euro.
It was a disaster. Mr. Juszkiewicz, in an interview, didn’t sugarcoat it.
“No, it wasn’t a great decision,” he said. “It didn’t work out very well. I think it was a rational decision, but it turned out to be a very poor decision, and it’s a decision I made. It is what it is.”
Before we go further, we need to step back and take stock. Much is at stake.
You once got the feeling that Carlos Santana could take an entire smoke break while he held a single note on one of his Gibsons, in the days before he switched to Paul Reed Smith guitars. Jimmy Page bought a Gibson off Joe Walsh and called his Les Paul “my mistress and my wife.” His double-necked Gibsons looked so heavy they might topple his spindly frame. Hendrix was really more of an upside down Stratocaster guy, but he had a Gibson Flying V, one of the most distinctive guitars ever made. So, of course, did Eddie Van Halen.
And then there is Nigel Tufnel.
No veneration of Gibson was greater than the scene in the movie “Spinal Tap” in which Nigel, played by Christopher Guest, took the filmmaker Marty DiBergi, played by Rob Reiner, around his voluminous guitar collection.
Nigel, wearing a skintight T-shirt with a life-size drawing of a rib cage, starts the tour by lifting up a 1959 sunburst Gibson Les Paul Standard.
“This is the top of the heap right here, there’s no question about it,” Nigel says, deadly earnest. He points to the body of the guitar. “Look at the flame on that one. It’s quite unbelievable. This one is just” — he shakes his head — “it’s perfect. Nineteen fifty-nine.”
Then he tilts the guitar toward the fictional documentarian. “Listen,” he says, reverently.
Marty begins to ask him how much it costs, but is immediately cut off.
“Just listen for a minute.”
Marty: “I’m not …”
Nigel: “The sustain. Listen to it.”
Marty: “I’m not hearing anything.”
Nigel pauses, looks at the guitar and then back at Marty, and says, “You would, though, if it were playing.”
I could keep going with “Spinal Tap” dialogue, and I actually tried to before my editor wisely intervened. But I think I’ve made my point. Gibson is more than just a company, it’s a public trust.
Mr. Juszkiewicz was part of an investor group that bought the company in 1986, the last time it was on the verge of bankruptcy. He was a turnaround guy who had been an engineer at General Motors and played guitar in a band at Harvard Business School. (“It was mostly rock ’n’ roll, we did a lot of parties. Think ‘Animal House.’”)
He righted the ship, but in recent years has had a series of struggles. The Justice Department raided the Gibson factories and offices in 2011, accusing it of importing banned woods from India and Madagascar. Mr. Juszkiewicz railed against government overreach, became a right-wing darling and got invited to Congress for a speech by President Barack Obama, in an act of defiance. The next year, Gibson agreed to pay a penalty of $300,000 and $50,000 more to promote conservation.
Mr. Juszkiewicz also wanted to make Gibson guitars more techno-whizzy, so they could even tune themselves. Purists were horrified. Neal Schon of Journey once referred to it as “all this electronical, robot crap.”
Mr. Juszkiewicz called it “great technology” and said he believed all guitars will eventually have it. But auto-tuning has been scaled back after, he said, “the trolls took over the dialogue.”
“My regret is we probably pushed a little too fast,” he added.
Still, Mr. Juszkiewicz sticks to his broader vision for Gibson, which includes lower-priced brands like Epiphone and Kramer. Nike has been his model. He said he realized that, “like Nike, you couldn’t just sell to track guys, you had to sell to regular consumers.”
Certainly, one can make an argument to diversify. Guitar sales are still below the peak they reached in the years before the financial crisis, though they have been recovering, according to data from The Music Trades, a magazine.
Even Mr. Juszkiewicz worries about the future. “Kids today have so many more choices,” he said. And there are no guitar heroes anymore. Justin Bieber strumming an acoustic doesn’t cut it.
Whether a company should diversify or stick to what it’s good at is an eternal business dilemma. But ultimately it’s about execution, and he made a losing bet.
Mr. Juszkiewicz acknowledged that his hold on the company is at risk.
“It is accurate to say bankruptcy is a possibility in the sense that our bonds expire,” he said, although he was hopeful about ongoing discussions to refinance.
At the same time, he said, some of the bondholders are not concerned about getting paid. “They are more interested in owning the company,” he said. “That’s an ownership play.” He did not elaborate further on that point.
Gibson’s future will be much clear by Aug. 1, when much of its debt comes due.
In a statement, K.K.R. said it was “in constructive dialogue with the management,” and called Gibson “a terrific company with dedicated customers, employees and suppliers.”
Blackstone did not comment.
For its fans, Gibson has a powerful legacy.
When I was a kid, I worked at a sub shop on the Virginia Beach boardwalk so I could earn enough cash to buy a Les Paul off a sailor looking to unload it. I brought along my older brother, who once built his own acoustic guitar and assembled sound effects for electric guitars from kits. He’s a man of few words, so I tend to monitor his eyebrow movements like one might watch a seismograph. When the Gibson’s case was opened, his forehead would have registered on the Richter scale. We closed the case and closed the deal. I didn’t have an ear or a sense of rhythm, but it was nothing that distortion and wah wah pedals couldn’t fix.
Whatever happens, Mr. Juszkiewicz is 65 and his future with Gibson is winding down. For his long-term vision to succeed, he said, he will eventually “have to pass the baton to someone who also has that dream.”
He added, “Part of this is evaluating financing options, and I have to look at what is best for the company, all of the stakeholders and myself.”