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Sour notes reign at Baldwin Piano

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CINCINNATI — Despite generations of serving artists from Igor Stravinsky to Liberace, America's largest pianomaker is in federal bankruptcy court.

The reasons behind the tough times at Baldwin Piano & Organ Co., however, are very much in dispute.

Former chief executive Karen Hendricks, previously an executive at Dial Corp. and Procter & Gamble Co., and her supporters say she was well on the way to turning around a company mired in old ways and stuck with excess manufacturing capacity.

But those who succeeded Hendricks contend that they found 139-year-old Baldwin bloated with inventory, saddled with underused plants and personnel, and short on cash to pay workers and bills.

Hendricks exercised a contractual right to step down as CEO in February, a move welcomed by a group of Baldwin piano dealers and outside investors that had long criticized her management and called several times for her ouster.

Paul Majeski, publisher of Music Trades magazine, which tracks industry sales, says Baldwin's sales suffered under Hendricks, who blamed her problems in part on imports of low-cost Korean pianos into the United States.

Meanwhile, Baldwin competitor Steinway & Sons was building sales of its pianos even while importing less-expensive products.

"(Steinway) figured out how to deal with it," Majeski said. "In that same time period, Baldwin fell apart."

Baldwin's new chief executive, Robert Jones, says he continues to find problems since taking over the company with the blessing of dissident stockholder Kenneth W. Pavia, a harsh Hendricks critic.

Jones has already cut $3.3 million from the payroll through layoffs, and he said the reorganizing isn't finished.

Hendricks, 53, said she devoted 6 1/2 years to making Baldwin more efficient.

She oversaw the selloff of Baldwin's financing operation and electronic components division and cut the work force from 1,500 to about 600.

"We were executing a strategic plan that would clearly have Baldwin land on its feet and be healthy," she said. "The industry as a whole has been under pressure."

She said the last key step was closing a money-draining plant in Greenwood, Miss., that produced wooden cabinets for Baldwin's pianos. The plant was closed in May, after Hendricks had left.

Nearly two dozen of Baldwin's 375 dealers twice wrote to the company's board seeking Hendricks' ouster, blaming her for the company's increasing problems.

Bill Dollarhide, a dealer for 26 years in Pensacola, Fla., signed both letters. He said Hendricks didn't know how to be successful in the piano business, and that the board should have fired her when sales and inventory problems surfaced.

"They should have seen what was happening a long time ago," Dollarhide said. "She was just not the right person at the time."

Jones, 60, who came to Baldwin from one of its Korean competitors, Samick Music Corp., doesn't think the company is likely to emerge from reorganization this year.

He said the fact Baldwin could not make its payroll shows that it wasn't close to being turned around.

Baldwin hasn't seen a significant profit since 1997, and has sustained net losses of $18 million over the past two years. At the end of 2000, it had $40 million in debt.

Pavia, a Miami-based investor who now owns about 12 percent of the company, said he tried unsuccessfully to have Baldwin's board replaced or the company sold. He also sent Hendricks a letter in May that blamed her for the deterioration.

"I can state with confidence that with each passing day, management will have to address new issues that are directly attributable to your legacy," Pavia wrote.

John Gutfreund, former chief executive of investment bank Salomon Brothers Inc., is a Hendricks supporter who served on Baldwin's board during her tenure and resigned when she stepped down. Gutfreund said Hendricks' challenge was to modernize an old-line company burdened with debt.

"She was fighting a very difficult, uphill battle," he said. "I think over the last year and a half, she was making progress, but it wasn't fast enough to appease certain major investors."

Jones said that if Baldwin's dealers continue to support the company, it will survive and eventually thrive.

"It's a terrific product, a wonderful product with a wonderful history," he said. "This is an American treasure."