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.

By Jonathan Berr Aug 14, 2013 7:24AM
Close-up of a Steinway piano (c) Dario Cantatore/Getty ImagesUpdated 9:05 a.m. ET

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And indeed, Kohlberg has withdrawn from the bidding process.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.

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Aug 14, 2013 10:53AM
Ah, a hedge fund bought the company. First things first, fire all the craftsmen that make their instruments, steal their pensions, then outsource all the manufacturing to some 3rd world craphole where underage slaves can build an inferior product. I like the fact that according to the article ""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,"  Nice, Leer Jets, Tiffany's, all the companies that cater to the wealthy are doing exceptionally well while the middle class gets boned. Please tell me again how the rich pay too much taxes and how we should give them even more breaks?
Aug 14, 2013 10:46AM
Saw $512 miilion and thought that's a lot for a piano, Then I read the article.
Aug 14, 2013 10:28AM

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.

Aug 14, 2013 10:23AM
I still have my first Ludwig drum set. I walked into a store with my dad in 1964 (I was 14), and they had a 'Joe Morello' special going on. A four-piece white pearl set with a stainless snare and four cymbals. Price was around $400. I bought the set with cash and a $200 advance from my dad. As we carried the drums to the car, my dad asked, "Who is Joe Morello?"  I had no idea, but figured out later that he was one of the most incredible drummers ever. We laughed for years about that.
Aug 14, 2013 10:56AM
To know music is to know life.  Make music, the world would be a better place.
Aug 14, 2013 11:01AM
As long as the craft quality remains intact, there is hope for the future. Thank you for saving the maker, I've been working all my life to protect the musician who makes the other half of the reputation just as legendary.
Aug 14, 2013 10:59AM
Wishing best of luck to the company that puts incredible craftsmanship and quality ahead of other, more obvious pursuits.  I'm glad Walmart didn't buy them; a pressed-fiber instrument with faux-wood veneer and fishing line strings just doesn't sound the same!
Aug 14, 2013 11:34AM
I hope they don't destroy another iconic american brand by selling the name to some second rate overseas manufacturer.
Aug 14, 2013 12:01PM
So, Steinway is being bought by a hedge fund. Can we expect plastic Charlie Brown pianos while waiting for the company to be broken up?
Aug 14, 2013 12:12PM
Mr. Paulson, two days ago was my birthday. You can give me a Black Steinway Grand and sit it in my living room. Of course I wouldn't have room for anything else but thats OK.
Aug 14, 2013 1:17PM
steinway's always stuck to making the high-end stuff. there's a market for the best, and a steinway holds its value. even a worn-out, 60 year old 6' steinway can fetch 30k.
Aug 14, 2013 12:09PM
I'd buy a Steinway just for the privilege of saying I have one, even if I didn't know how to play.....which I don't. Well, I can play a little bit but just barely.
Aug 14, 2013 1:04PM
To:Top Scott PC; Yes and Yes. But I think we have enough guitars.
To:franksam487; Absolutely right about Joe Morello. Sometimes intuition pays off.
I doubt that the buyer will outsource this grand old company. Even if he doesn't know music, he does know business, and high end business at that. It just wouldn't make sense. Business wise or music wise. I'm glad they bought Selmer Paris and kept the integrity of that wonderful name.
I bought my Selmer Alto in France in 1958. I traded in a Martin Alto and paid $180.00. Such a deal.
To V_L:: Thank you, and please continue. Just think how "more" depressed this world would be
without music....Good Music!
Aug 14, 2013 4:49PM
Sad day for Steinway.  Hedge fund will fire everyone and move production to China or Mexico.  New product will be crap with the Steinway name on a balsa wood piano.  Expect to see them clogging up the isles at Wal-Mart within 16 months.
Aug 14, 2013 1:40PM
As long as they keep making Steinways the way they've been making them for more than 100 years, I can live with it.
Aug 14, 2013 1:35PM

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.

Aug 14, 2013 10:46AM
Mastery of the skin flute is a long process!
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