John Paulson hits high note with Steinway deal
The hedge fund billionaire's unexpected $512 million offer for the storied piano maker ends Kohlberg & Co.'s earlier bid.
Steinway Musical Instruments (LVB), whose stock ticker is an ode to Ludwig van Beethoven, has just been through a financial opera of sorts, ending with a sale of the company to a surprise bidder, who pushed an earlier one off the stage.
Billionaire hedge fund manager John Paulson has offered about $512 million, or $40 a share, for the company that's been making what are arguably the world's finest pianos and other musical instruments since 1853.
That topped a $438 million, or $35 per share, bid made in June by private equity shop Kohlberg & Co., according to The New York Times. Steinway's board has determined that the new bid is superior to Kohlberg's and is urging shareholders to approve Paulson's offer.
And indeed, Kohlberg has withdrawn from the bidding process. Steinway at first identified the new bidder only as "an affiliate of an investment firm with over $15 billion under management," but Paulson's identity was revealed in the media reports on Tuesday.
Paulson's move was unusual. Although negotiators try to find a better deal than the one accepted during the so-called "go-shop" period, they rarely get a superior offer. Steinway called off plans to sell itself in 2012 after considering its "strategic alternatives" for 17 months. The company's financial performance has been improving recently.
Steinway earned $20.2 million, or $1.60 per share, in the latest quarter versus $2.4 million, or 19 cents a share, a year earlier, as it benefited from the sale of its office building in New York. Sales rose to $92.4 million, fueled by a double-digit gain in its piano business. Though sales have been depressed in the U.S., emerging markets offer an opportunity for growth, according to The Financial Times.
"The bids are the latest indication of the bets that investment groups are making in the luxury goods sector as they seek to profit from the recovering finances of the wealthy," the newspaper said. "Steinway sells pianos for as much as $218,000."
Besides pianos, Steinway also makes Galway Spirit flutes, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums. The shares closed at $38.27, down 3.3%, Tuesday. They've gained more than 87% this year.
Jonathan Berr does not own shares of the listed stocks. Follow him on Twitter @jdberr.
Life without Instruments we would have boring computerized / fake music. People losing touch knowing how to play something real.
Save our Orchestras and Bands. Buy an instrument today and learn how to play it.
Truly HOPE Steinway stays as it is! It is a beautiful instrument. Sadly, Baldwin, Cincinnati, OH, was dismantled. I own a Baldwin and wanted, at the time, an American made piano. There aren't any left! There are very few people that can service these beautiful instruments. The finish on my black lacquer piano is crinkling. When I discovered this problem, the manufactured had gone bankrupt and no recourse.
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Reports say the generous benefactor behind the huge gratuities is a former PayPal executive.
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