Cornerstone Refinancing, Not Divesting

Aug 01, 2001 9:30 PM  By

Speculation had it that Westchester, OH-based Cornerstone Brands was planning to sell some of its titles. But the catalog consolidator says the titles — home furnishings books Ballard Designs, Frontgate, and Smith & Noble; travel goods title TravelSmith; apparel mailer The Territory Ahead; gifts book Whispering Pines; and bedding and apparel book Garnet Hill — are not for sale. In fact, Garnet Hill copresidents Brian Gowen and Diane Brush and creative director Greg Covell approached Cornerstone management in May about buying the catalog, say sources within the company. Cornerstone refused to sell it, and the executives resigned in June. (None of the three executives were available for comment at press time.)

Instead of divesting titles, the $485 million Cornerstone is working on a refinancing. The cataloger, which received an initial venture capital investment of $60 million in September 1995 and another $25 million last year, is switching from one bank syndicate to another, according to sources within the company.

Some of Cornerstone’s cash problems stem from excess capacity in its 860,000-sq.-ft. distribution center, says executive chairman Bill End (pictured above). Cornerstone had planned to acquire additional catalogs during the past two years. But instead, “we overspent on the Internet like most companies did,” End admits. Cornerstone plans to maximize the space by handling fulfillment for one or two outside companies; it also plans to get back into an acquisition mode next year. This past spring, Cornerstone began handling fulfillment for French Country Living, a home goods mailer in which Cornerstone has an equity stake.

TIME FOR A TURNAROUND?

Cornerstone’s sales increased just 3% in 2000, though End says the company is healthy and profitable. But one source familiar with Cornerstone contends that “there were a lot of missteps over the past 18-24 months, with projections not being met.” Other observers say that internal problems led End to remove himself from the day-to-day operations and bring in Dick Gyde, credited with turning around Disney Direct, as president/CEO in May.

But End contends that he didn’t hire Gyde for his turnaround skills. “We interviewed a number of different people and hired him as the best candidate,” End says. “Dick is a good businessman, merchant, marketing, and operations guy.”