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Famed piano maker Steinway sold for $512 million to Paulson

Famed piano maker Steinway sold for $512 million

Kevin McCoy, USA TODAY10:22 a.m. EDT August 14, 2013

enerable piano maker Steinway is being sold in a $512 million deal after hedge fund manager John Paulson made sweeter music for investors by topping a tentative July agreement with from Kohlberg & Co. The Waltham, Mass.-based company announced Wednesday it had terminated the $35-per-share deal with Kohlberg and reached a definitive merger agreement with entities of Paulson & Co. at $40 per share. Steinway shares were up more than 5% to $40.30 in premarket trading Wednesday. Under terms of the cash transaction, a Paulson affiliate will commence a tender offer within five business days to acquire all outstanding shares of Steinway’s common stock in preparation for taking the instrument company private. The company’s board of directors unanimously recommended that stockholders tender their shares. Steinway said it would pay Kohlberg a termination fee totaling approximately $6.7 million. “The company’s proven business model and highly skilled employees provide a strong foundation on which to expand,” Paulson said in a formal statement. “We fully intend to maintain the superb quality of Steinway’s musical instruments, which are the finest in the world.”Steinway CEO Michael Sweeney said the final deal emerged from a “go-shop” process conducted after the Kohlberg agreement. The higher-value transaction reflects “the attractive value of the company’s heritage and growth opportunities,” he said in a statement.

“Our employees, dealers, artists and customers can rest assured that Steinway will be in excellent hands under John Paulson’s stewardship,” said Sweeney. “He shares the company’s commitment to the musical community and embraces our strategies to fully leverage our premier brands and extend our market leadership.”

Steinway & Sons was founded in 1853, in the same month that Franklin Pierce succeeded Milliard Fillmore as president. Its artisan-crafted pianos are famed for their rich sound, and are used by musicians worldwide.

Steinway Agrees to Be Bought by Paulson for $512 Million

Steinway Musical Instruments Inc. agreed to be acquired by Paulson & Co., the hedge fund owned by billionaire John Paulson, in a deal valuing the 160-year-old piano maker at about $512 million.

The offer for $40 a share tops that of private-equity firm Kohlberg & Co., which had bid $35 a share last month for Waltham, Massachusetts-based Steinway. Kohlberg withdrew its bid yesterday after disclosing a rival bid of $38 a share said to be from Paulson. Steinway’s board recommends that all shareholders tender their shares to the new offer, according to a statement today.

Steinway, whose pianos can take almost one year to make, disclosed Kohlberg’s bid of about $438 million on July 1 and said at that time it would conduct a 45-day go-shop period where it could seek another suitor. Today’s deal was announced as that deadline was set to expire and the bump in Paulson’s offer may indicate a third party was involved, said Sachin Shah, a special situations and merger arbitrage strategist at Albert Fried & Co.

“The fact that they went from $38 to $40, implies that somebody did submit an offer,” Shah said in a phone interview. “Paulson can complete this transaction, they feel confident, their board has done their due diligence, that’s a conversation I’ve had with them.”

Steinway rose 5.6 percent to $40.42 at 9:30 a.m. in New York and had gained 81 percent this year through yesterday’s close. The deal is expected to be completed in late September and once it closes Steinway will become a private company.

Paulson Win

“We think that the new offer today is a win for Paulson company and for shareholders,” said Bradd Kern, a portfolio Manager at Irvine, California-based Armored Wolf LLC., who owns Steinway shares. “We have actually added slightly since the original offer.”

Steinway disclosed Kohlberg’s offer three days after it closed the $46.3 million sale of its stake in the famed Steinway Hall building on West 57th Street in New York City, which houses its flagship retail showroom. The company has ended its agreement with Kohlberg and will pay a termination fee of about $6.7 million, according to today’s statement.

The piano maker that gave the company its name was founded in 1853 by German immigrant Henry Engelhard Steinway in a Manhattan loft on Varick Street, and over the following decades became a brand recognized worldwide.

German Immigrant

The company was bought by saxophone maker Selmer Industries in 1995 and taken public the following year by investment bankers Kyle Kirkland and Dana Messina, then chairman and chief executive officer, respectively. They expanded through acquisitions and faced declines in sales during the recession. In 2011, the executives made a bid to buy the band division — which includes Bach Stradivarius trumpets and C.G. Conn French horns. Steinway turned down the offer and ended a review for strategic alternatives in December.

“At $5 per share more than the offer from Kohlberg, this transaction provides shareholders significant additional value for their investment,” Michael Sweeney, Steinway’s chief executive officer, said in the statement. “At the same time, our employees, dealers, artists, and customers can rest assured that Steinway will be in excellent hands under John Paulson’s stewardship.”

To contact the reporters on this story: Niamh Ring in New York at nring@bloomberg.net; Lauren S. Murphy in Toronto at lmurphy48@bloomberg.net

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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