From Reuters
December 14, 2006

Gibson Guitar Corp. will acquire China's state-owned Dongbei Piano Co. in a move aimed at boosting its brand and sales in the world's fourth-largest economy, industry sources said.

Nashville-based Gibson, famous for its branded guitars, which have been popular for decades among global artists such as the Beatles' John Lennon and Irish band U2, will acquire all of state-owned Dongbei Piano in northern China, sources involved in the deal said.

Gibson will pay several hundred million yuan for the purchase and an official announcement will be made today, they said.

Interesting development. Thanks for posting, Mike.

So....Baldwin (which is owned by Gibson) will now become a Chinese Made Piano, or so it appears.

Why would you assume that Climber? Steinway didn't become an Asain piano because they have lines made overseas. They're still a US or German piano.

They bought Baldwin and never knew quite what to do with it. It does not really surprise me they would do this, but again I wonder if they really have any idea what to do with it.

Very interesting indeed. I wonder if Hamiltons and Wurlitzers will soon be made by Dongbei rather than Sejung? I think Gibson are making strides in the right direction with Baldwin after some big screwups. They now seem to be agressively seeking new dealers (and former dealers) rather than turning them away. This could provide all manner of interesting permutations. I rather doubt that traditional Baldwins will be built in China, though.

--Dennis

That reminds me of something a local music store owner told me. "When Gibson buys another company, you can bet the prices will go up."

--Dennis

The problem is they are trying to sell Baldwins at Steinway prices.. sometimes more, i have heard. Baldwin's niche was always a very good piano but much more reasonable than a Steinway. The market is not really in need of more premium price pianos.

I have also heard that the Sejung Hamiltons are quite nice. Perhaps moving the line is not that great an idea.

It was only a matter of time before non-Asian companies started buying Chinese manufacturers. I also believe that other Chinese manufacturers will start developing their own brands in earnest. Third party relationships are very difficult to maintain over time and are often started to gain entry in a market to test the waters and gain knowledge before making the big move. Not saying they will go away but they won't be the only or possibly even the pervasive model.

Yeah, the Hamiltons I've played were very nice for the price. The Nordiska was even nicer, though, and about the same price . . .

--Dennis

Smart move.

It's of course only the beginning of things.

And I would be very interested to learn if this is simply a "shares-in-company" type purchase as Dongbei is presently state owned.

And as such they always will have to hold 51% of the shares.

You'll get my attention when these companies, especially some of the privately[/b] owned piano companies in China today, make their move and buy some of our own Western companies here.

Rest assured - that'll be next.

Norbert

Here's a link to the official press release today from Gibson (privately owned now in China). It claims 100% ownership:

www.gibson.com/allaccessNewsItems.aspx?aliaspath=/AllAccess/Gibson%20Guitar%20Acquires%20Dongbei

OK, now I'm curious to see whether Geneva International will still source the Nordiska-branded pianos from Gibson-DongBei. (Or whether Gibson-DongBei will continue to supply all their current OEM and private label customers, assuming Gibson-DongBei has the choice.)

Any one who has any info or insight to share, I look forward to reading your post and/or private e-mail.

Well, I thought it was fairly well known in the music industry that Gibson is about the worst-run company in human history. I would not regard this as a good development. I don't really know the piano industry, but experiences with Gibson in other areas have been...uh, not good. (I'm not speaking from a consumer standpoint, but from knowledge of some of Gibson's activities in the industry generally.)

Other than Nordiska Pianos and Story & Clark, is Dongbei manufacturing any other OEM lines that would represent a major business loss if cancelled?

I thought that Nordiska and Story & Clark OEM business are significant to Dongbei ... hmmmm

I just wonder if something much larger is about to unfold?

From Gibson's press release: (link a few posts up)

"Baldwin Zhongshan is Gibson’s first manufacturing base in China, and mainly produces Baldwin, Hamilton, and J&C Fisher’s pianos."

I would imagine that there are contracts in place for Dongbei, now Baldwin Dongbei, to produce Nordiska, Story & Clark, and to assemble Weinbach pianos for a given period of time. Those contracts would be binding on the new owners until their expiration date. From reading the press release it appears that Gibson's main goal is to secure an additional Chinese production facility to help meet the booming demand for their pianos in China. If this is, in fact, true, then perhaps they do not intend to produce Hamiltons and/or Wurlitzers there. Of course, Baldwin is surely bound by contracts with Sejung regarding production of those instruments for a given time period as well.

--Dennis

Of course, as Gibson is a privately held company rather than one traded publicly, they are not under any obligation to be forthcoming regarding their future plans.

--Dennis

As I understand it, the Nordiska name was purchased by Dongbei along with the factory in Sweden before they moved it to China. Geneva International then procured an exclusive US license to the Nordiska name from Dongbei, which according to papers filed in the Pianosuperstore case, is reflected in a US trademark registration by Geneva. Those papers don't shed a whole lot of light on the other details of the Dongbei/Geneva deal, like duration, transfer, or rights to use the name on pianos not manufactured by Dongbei. But I got the impression that Gibson's motivation is to sell and/or manufacture more pianos for the Chinese market. As opposed to expanding its piano activities in the US.

Here's a quote from a Shanghai newpaper: "We have always been optimistic on the Chinese market," Gibson President Dave Berryman said in the statement. "By acquiring Dongbei Piano, we can offer more types of piano products in China." (link)

In any event, I'd expect a Gibson name association might be beneficial to Geneva.

Howard

Aw, c'mon, look what they did for Slingerland...

Some helpful perspective from Norbert's Steigerman letter, referring to Xinghai production:

Something else to consider:

Gibson (Henry J) usually only buy distressed companies. Was Dongbei in trouble? Or was this this their cheapest avenue into China?

From the evidence I've seen, Dongbei build the worst of the Chinese pianos. I've never seen so many poor bridges and collapsed soundboards on new instruments. Three out of the five (variously branded) Dongbei uprights I've been asked to tune in showrooms recently were so poor I recommended rejection by the dealer. I hope Gibson and Dongbei can sort each other out, especially since there are now some frighteningly good pianos built by other firms in China.

A recent trip to Shanghai by a business partner revealed that a Chinese built bootleg copy of an Epiphone Melody Maker can be bought for $75, and this was in an accredited Gibson dealer; selling the genuine article alongside the fake!

It really is a different world!

That's a surprise--I thought Norbert was going to buy the Dongbei plant.

Lord knows I tried.

But you can't always be first....

Norbert :p

Interesting rough estimate- If Gibson paid 500M Yuan that equates to about 63M US for Dongbei. Dongbei is noted as the 3rd largest manufacturer in China.

If Dongbei sold 40,000 pianos (30k upright+10K grand) at an average price of 3k each that would be gross sales of about 120M annual. That would mean that Gibson paid 2x sales for the company.

Obviously these are gross figures subject to wide variation but are interesting nonetheless.

I'm really surprised - I understood that all Chinese companies had to have at least part Chinese ownership and could not be 100% foreign owned. But all the press releases I can find talk about Gibson 'taking over' or buying all the shares. Strange. Perhaps China doesn't see piano production as a core industry any more!

JohnEB,

China has been experimenting with various ownership models. I don't expect China to sell its largest state owned companies any time soon but the smaller ones in all industries i.e. Dongbei (less than 100M US) are undoubtedly on the market.

Dongbei apparently moves from #3 to #2 in size now (Gibson= Baldwin plant + Dongbei). I assume it is moving ahead of Beijing now (?). Pearl River I believe is the largest (city of Guangzhou owns).

It will be interesting to see how the various chinese manufacturers evolve from a quality perspective. We now have state owned, foreigned invested and outright foreign owned. Evolution in terms of worker satisfaction (job guarantee vs. capitalist model), quality of product, management acumen.

It's all part of China's further foray away from state control to capitalism. The fact that a state owned organization can sell itself bring net inflows of dollars and talent into China is possibly very rewarding and could also increase the amount of money earned through exporting at the same time. Remember management reform will be key to continued growth.

It will be interesting to see if Gibson's acquistion is the spark for other chinese piano acquistions as this mob mentality happens in other industries. There could be a rush to own before its too late.

Keep in mind that the biggest market for pianos is the Chinese themselves. In discussion about Chinese pianos a point that is often not discussed is why the chinese feel pianos and music is so important while it is declining in the West..hmmm.....

I think your average sales figures are off. I would guess that the average vertical sold at wholesale was about $700-$800 and the average grand about $2000-$2300.

Still it is very interesting.

Steve

I was hoping someone would weigh in and correct my assumptions. That means that the company was bought for something closer to 1x sales.

Someone with more knowledge of the piano industry and cost of doing business in China may be able to weigh in about the attractiveness of the deal for Gibson.