Colorado Town Council Plans Lawsuit
<December 29, 2010> In a move that will not surprise many in the industry, Russound has decided to close Colorado vNet fourteen months after purchasing it in October 2009. The move appears to be related to a breakdown in negotiations with the town of Loveland, Colorado which had provided the company’s previous owners with $900,000 in incentives to move operations there…and had renegotiated a $500,000 deal with new owner Russound.
According to press reports out of Colorado, Russound verbally agreed to the deal which involved providing the town with a $100,000 check and $400,000 letter of credit. The company also agreed to maintain the facility in Loveland with a staff of at least 125 employees. However, when the town asked company officials to sign the deal, Russound apparently balked and stalled the city for months.
Russound said in a press release today that it was “winding down operations” including discontinuing the Colorado vNet product line. The statement went on to say the company would “reassess its product line as it relates to the evolving custom install market.” However, the release stopped short of promising a re-launch of the company in the future.
“Colorado vNet has a great reputation in the marketplace, but as the needs of the market shift in tandem with a challenging economy, we need to take a long, hard look at the profit potential of the current product line in relation to the income it generates,” said Chief Executive Officer of Colorado vNet Corp, Charlie Porritt.
Attempts to reach Porritt or Colorado vNet’s press agent were unsuccessful by the time this report was written.
Some questioned deal, but Russound was confident…
Russound had purchased Colorado vNet shortly after it closed in late 2009 as a result of a financial package falling through according to the company which was headed by former Hewlett-Packard executive Bill Beierwaltes. Although some potential buyers might have questioned the company’s viability in view of its recent closing, Russound expressed confidence with Porritt saying at the time, “The addition of Colorado vNet to the Russound family will advance both brand’s ability to deliver whole house entertainment & control solutions while expanding our integration partnerships with a variety of lighting, HVAC, security, and automation brands.”
Still, many industry analysts questioned the wisdom of the move by Russound. One industry insider told the ALERT in a story appearing in October 2009, “I’m not so much concerned with what it cost them to buy [Colorado vNet], but rather what it’s going to cost to revitalize it.”
No love for Russound from Loveland, CO…
Although the company has never publicly commented on the negotiations with the city of Loveland, CO, it would be reasonable to assume that this agreement was, at the very least, a complication for Newmarket, NH-based Russound and potentially impacted its ability to improve profitability through a reorganization and rationalization of the two companies businesses.
According to a story by the North Colorado Business Report, the Loveland City Council voted to begin legal proceedings against Russound at a council meeting on December 13, 2010. The vote was unanimous.
At issue was a $900,000 package of incentives given to Colorado vNet in March 2008 to relocate their facility from Longmont to Loveland…taking over a vacant building that was formerly a Water Pik production facility. The agreement also called for the company to grow its employee base from 80 in 2008 to 250 by the end of 2012 or face a penalty of $2,000 for each job under the agreed upon 250.
Money, money, money…
After Russound purchased the company in October 2009, the Loveland city council engaged in negotiations to restructure the package to better meet the needs of the new owners. On October 19, 2010, the council adopted the new package, valued at $500,000 based on the negotiations with Russound.
One press report, on Coloradoan.com said, “To say Loveland officials and taxpaying residents have been strung along by this company and its representatives is not easy, but the years of convoluted negotiations and unmet promises seem to speak for themselves.”
Several press reports out of Colorado quoted Colorado vNet sales and marketing vice president Petro Shimonishi from a November 16, 2010 press release which said in part, “In less than one year we have managed to cover most of the country, launched some innovative new programs, developed striking materials to support the rep firms and dealers in their sales efforts, and are continuing to build the Colorado vNet brand every day.”