Mournful Music

Baldwin goes bankrupt

For more than 100 years Cincinnati's Baldwin-United (1982 revenues: $3.6 billion) made sweet music by sticking mainly to the business it knew best, manufacturing pianos. Then in 1968 the company began dabbling in financial services with the $16 million purchase of a Denver bank. That was the beginning of a 14-year buying spree that put Baldwin in businesses ranging from insurance to trading stamps. But the firm stretched itself too far. Last week, after stalling lenders for six months, Baldwin filed for reorganization under Chapter 11 of the bankruptcy laws.

The architect of Baldwin's growth was former President Morley Thompson, who began selling pianos door to door after graduating from the Harvard Business School in 1950. Thompson was a wizard at shifting corporate funds around to keep taxes low and raise cash for new purchases. In January 1978 Baldwin acquired United Corp., an investment firm, and in October 1981 the company shelled out $367 million for Sperry & Hutchinson, the Green Stamps business.

Baldwin's hottest financial product has been single-premium deferred annuities. These accumulate untaxed interest until the depositor begins withdrawing the money. Baldwin sold $3.7 billion worth of annuities during the past three years with promises of up to 15H% interest. But the firm has been earning much less than that on its own investments because of falling rates. Additional costly problems arose at MGIC Investment, the mortgage-guaranty company Baldwin acquired in March 1982 for $1.17 billion. MGIC's profits fell 21% last year.

Troubles became clear last March, when Baldwin announced it was unable to pay $440 million in short-term debt. Baldwin negotiated a tide-me-over plan with its lenders, and Thompson was replaced in May by Victor Palmieri, the corporate-rescue specialist who had revived Penn Central. Said Palmieri last week: "Things at Baldwin were more confused than anyone could have imagined. A video-game designer would have had a hard time matching the company's organization chart."

Baldwin's difficulties mean that its annuity holders will have to wait at least three years before being able to withdraw all their funds, but Palmieri aims to give them their money back, plus market-rate interest. Most of Baldwin's 165,000 policies, which average $25,000, are nest eggs for retired people. This file is automatically generated by a robot program, so viewer discretion is required.