So the rumours are true. The frequently talked about financial woes have reached the point of no return and Gibson has filed for Chapter 11 Bankruptcy protection. Control of the famous guitar brand now passes to lenders with the hope that the company can plot a course that will see it survive.
We reported on the issues facing Gibson back in February in our article Has Gibson lost its Mojo following S&P downgrade. At that time there were a number of bonds reaching maturity and loans that needed refinancing with July cited as the critical point which would define whether Gibson survived. However, it would appear that the issue has come to a head a lot quicker than commentators had expected.
The woes at Gibson have been blamed on a number of factors. The often cited decline in the popularity of the electric guitar as well as issues with the supply of Rosewood has been put forward as key in Gibsons financial decline. However, for us it was the re-focusing of the business into a Music Lifestyle company that is the main reason for Gibson’s current perilous position.
CEO Henry Juszkiewicz has spent significant sums of money on bolting on audio and home entertainment offerings that did nothing but laden the company with debt. A drop in sales combined with some very poor relationships with major retailers hit revenues and impacted upon Gibson’s ability to repay the debt. With creditors concerned about how they would be repaid and no other company willing to offer further funds it could be said that the fact Gibson has filed for Chapter 11 Bankruptcy is not at all surprising.
The question is what next for Gibson? The Chapter 11 filing buys Gibson vital breathing space to put its house in order. It has been suggested that they will off-load the audio and home entertainments division. This would allow the company to return to its core business which was selling musical instruments. For most of us this would be a welcome path to take.
We would love to hear your thoughts on what has gone wrong at Gibson and whether the company deserves to survive.