Gibson's Sales Process Comes Under Fire
July 23 2018 - 2:24PM
Dow Jones News
By Becky Yerak
Blackstone Group LP's lending arm said bankrupt Gibson Brands
Inc. has failed to properly market its assets, thereby favoring its
proposed sale to senior secured bondholders.
The investment firm added that it is willing to provide
additional financing to give the guitar maker more time to consider
alternative offers.
Blackstone's GSO Capital Partners LP is owed $77 million on a
secured term loan the musical-instruments company had on its books
as it headed into bankruptcy. The firm on Friday echoed earlier
calls by unsecured creditors, including electronics company
Koninklijke Philips NV, for Gibson to make a bigger push to find
potential new buyers.
GSO said it "would even be willing to help fund that process by
providing" financing for Gibson during the bankruptcy, as well as
when it wraps up chapter 11 proceedings, "to further stimulate
bidding in an open-sale process," according to a filing Friday in
U.S. Bankruptcy Court in Wilmington, Del.
Gibson filed for bankruptcy in May with a reorganization plan
that would allow senior secured bondholders led by KKR & Co. to
convert their debt into equity in the business, which was founded
in 1894.
GSO said there are other interested bidders, both strategic and
financial, who might be willing to buy Gibson at a price greater
than the recent valuation of the Nashville, Tenn.-based owner of
such guitar brands as Les Paul and Flying V. Some potential bidders
haven't been contacted by Gibson about buying its assets, GSO said.
Earlier efforts to find buyers have been "half-hearted" and there
has been a "failure to properly market" the company, GSO said.
Gibson had no immediate comment Monday.
The reorganized Gibson is expected to be valued between $360
million and $430 million, according to an analysis by investment
bank Jefferies Group LLC.
Gibson blamed much of its recent financial struggle on its Hong
Kong-based Gibson Innovations Ltd. division, which sells
Philips-branded consumer electronics such as headphones and
speakers. Gibson said its musical-instruments business "has
performed well."
GSO said KKR is being enabled in the "scheme" to take control of
Gibson by "promising existing shareholders" some of the company's
value.
Gibson's majority owners, Henry Juszkiewicz and David Berryman,
bought Gibson in 1986. Mr. Juszkiewicz serves as chief executive
officer, while Mr. Berryman serves as president. They are also
board members.
The proposed restructuring includes employment and consulting
agreements with both men.
Mr. Berryman would receive a salary and bonus totaling nearly
$3.4 million and warrants exercisable for up to 2.2% of the equity
in the reorganized company, plus health benefits.
Mr. Juszkiewicz would receive, among other things, $2.1 million
in consulting fees and warrants exercisable for up to 2.2% of the
equity in the reorganized Gibson, plus health benefits.
"This obvious conflict of interest, and what appears to be
self-dealing, calls into question" Gibson's "determination" to
abandon its earlier marketing process and "capitulate" to the KKR
group, GSO said.
Creditors need to know whether Gibson struck a deal with the KKR
group because it believes the proposed plan is indeed in the best
interest of the business "or simply because insiders with control
over the company see it as the best way to gain value for
themselves individually," GSO said.
Gibson's proposed restructuring should also make clear whether
the money and new equity to be given to the two key insiders could
otherwise be distributed to creditors, GSO said.
Earlier this month, Gibson filed a document showing how much
each creditor group was expected to recover in the reorganization.
GSO, however, says that disclosure statement "still contains some
ambiguity" on that point.
Mr. Juszkiewicz and Mr. Berryman should be deposed to answer
questions about their motives in arranging the deal with the KKR
group, GSO said.
Gibson entered bankruptcy with holders of more than 69% of its
$375 million in senior secured notes also agreeing to provide up to
$135 million in financing to the business during its chapter 11
proceedings. That group included KKR.
GSO said it, too, offered financing to help Gibson get through
bankruptcy -- and at terms that were more favorable and would have
given the company more leeway to "run a proper marketing process in
chapter 11."
Write to Becky Yerak at becky.yerak@wsj.com
(END) Dow Jones Newswires
July 23, 2018 14:09 ET (18:09 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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