Steinway OKs Paulson buyout but market sees rival bid
Steinway Musical Instruments, best known for its grand pianos, said it would be taken private by Paulson & Co after the hedge fund firm raised its offer to $40 per share, valuing the 160-year-old company at about $512 million.
Steinway's shares surged Tuesday, suggesting some investors expect a higher offer.
The company said Monday it had received a bid of $38 per share from an unidentified asset manager that topped an offer from Kohlberg & Co. of $35 per share. A source later identified the bidder as John Paulson's hedge fund.
The company said Tuesday that Kohlberg had waived its right to match or beat the Paulson offer.
"We expect this ownership structure as a private company to allow the Company greater flexibility to invest in long-term growth opportunities," Steinway President and CEO Mike Sweeney said in a note to employees announcing acceptance of Paulson's bid. "John is a very successful businessman who sees the significant growth prospects of our brands."
Sweeney said Paulson has a personal stake in the company: He owns four Steinway pianos. In a separate statement, Paulson said he does not plan to close, relocate, or change any of the company's manufacturing operations and hopes to expand global sales.
"We are delighted to have the opportunity to invest in a business with the tradition for excellence that Steinway enjoys," he said. "We will proudly support the company's legacy as the premier global piano manufacturer, a reputation earned with an uncompromising commitment to quality appreciated by almost all of the world's most demanding pianists."
Steinway said the deal with Paulson did not provide for a "go-shop" period but allowed it to accept a superior offer until the closing of Paulson's tender offer within 25 days.
Steinway, whose pianos have been used by legendary artists such as Cole Porter, Sergei Rachmaninoff and Vladimir Horowitz and by contemporary ones like Chinese concert pianist Lang Lang, said it had terminated its merger agreement with Kohlberg and will pay a termination fee of about $6.7 million.
The company's brands also include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums.
Waltham, Mass.-based Steinway's sales have been stagnating and it has struggled to keep production margins competitive. Sales rose just 2 percent in 2012.
The company said in December it had decided not to sell itself after a 17-month-long review of strategic options.
Kohlberg made its offer six months later, valuing the company at about $438 million.
The Paulson offer represents a premium of 31.4 percent to Steinway's share price prior to Kohlberg's offer.
—By Reuters with CNBC.com