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August 14, 2013 3:38 pm
The battle to take Steinway Musical Instruments private took a new turn after it emerged US hedge fund manager, John Paulson, was forced to raise his cash offer for the 160-year-old piano maker after a late bid from the company’s largest shareholder.
Paulson & Co’s $40 a share bid, which values Steinway at about $512m, came after South Korea-based Samick Musical Instruments submitted a rival offer of $39 a share, according to regulatory filings. Samick has a stake of more than 30 per cent in Steinway.
Steinway said on Wednesday it had terminated an agreed deal with Kohlberg & Co, the private equity group that dropped out of the auction this week after its $35 a share proposal, announced in July, was trumped by Paulson’s $38 a share cash offer. Samick’s bid forced Paulson to raise its bid further.
Expectations of further offers sent Steinway shares, which have risen 95 per cent in the year to date, up 7.9 per cent to $41.29.
The latest offers came during a 45 day “go-shop” period to solicit fresh bids, led by Michael Sweeney, the piano maker’s chief executive. Samick did not immediately respond to a request for comment outside its regular business hours.
According to a regulatory filing, as at July 14, Steinway had signed confidentiality agreements with 10 parties. They included Paulson and Samick, people familiar with the matter said.
Steinway’s board has recommended investors accept Paulson’s offer, which will remain open for a minimum of 20 days.
“At $5 per share more than the offer from Kohlberg, this transaction provides shareholders significant additional value for their investment,” said Mr Sweeney. Steinway will have to pay Kohlberg a termination fee of about $6.7m.
The agreement with Paulson does not provide for a further “go-shop” period, but Steinway is entitled to respond to certain unsolicited offers and could accept a better proposal if one arises during the tender period. A break of the deal terms would trigger a termination fee of about $13.4m.
It was still possible for Samick to re-enter the fray with a higher offer, a person familiar with the situation said.
The company’s Steinway & Sons pianos, Bach Stradivarius trumpets and Henri Selmer Paris saxophones have been luxury status symbols and must-haves in concert halls for decades.
Even as Steinway struggles with weak sales in mature markets such as the US and Europe following the financial crisis, it is enjoying growth in emerging markets. Steinway said last year that it was considering a sale of the company.
It is rare for Paulson & Co, whose founder gained fame from making bets against subprime mortgages ahead of the housing market collapse, to buy a listed company.
“The company’s proven business model and highly skilled employees provide a strong foundation on which to expand,” said Mr Paulson . “We fully intend to maintain the superb quality of Steinway’s musical instruments, which are the finest in the world.”
The deal is the latest example of the moves which investment groups have been making in the resilient luxury goods sector. Steinway sells pianos for as much as $218,000 each.
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