Piano maker Steinway goes private to the tune of $512 million

Billionaire’s hedge fund cinches ownership with $40 a share bid

Steinway Musical Instruments Inc. has 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, Mass.-based Steinway. Kohlberg withdrew its bid Tuesday 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 Wednesday.

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. Wednesday’s deal was announced as that deadline was set to expire and the bump in Paulson’s offer may in- dicate 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.” The deal is expected to be completed in late September and once it closes Steinway will become a private company. “We think that the new offer today is a win for Paulson company and for shareholders,” said Bradd Kern, a portfolio Manager at Irvine, Calif.based Armored Wolf, who owns Steinway shares. “We have actually added slightly since the original offer.” Steinway disclosed Kohlberg’s offer three days after it closed the $46.3million sale of its stake in the famed Steinway Hall building on West 57th St. 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 Wednesday’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 St. and over the following decades became a brand recognized worldwide.

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.