Piano maker Steinway tuned for takeover

Kohlberg agrees $438m cash deal for group

Grand piano maker Steinway Musical Instruments has agreed to be bought by private equity group Kohlberg & Co in a $438m cash deal for the 160-year-old company.

Kohlberg offered $35 a share, Steinway said on Monday, a premium of 15 per cent to Friday’s closing price of $30.43.

The deal is the latest indication of the bets private equity groups are making in the luxury goods sector as they seek to profit from the recovering finances of the wealthy. Steinway sells pianos for as much as $218,000.

Massachusetts-based Steinway, which has had to adjust to a weaker economic climate and changing cultural preferences, had said previously that it was considering a sale of the company.

The agreement provides for a 45-day period during which Steinway can solicit rival offers.

The company’s board unanimously recommended the offer. Any shares not tendered will be acquired in a second-step merger at the same $35-a-share price. Steinway expects to close the transaction in the third quarter of this year.

Founded by Jerome Kohlberg Jr after he left KKR, the private equity group focuses on buying midsized companies. Christopher Anderson, a Kohlberg partner, said the company planned to accelerate Steinway’s global expansion.

Although sales remain depressed in the US and Europe, emerging markets in Asia and elsewhere are presenting Steinway with growth opportunities.

Aside from Steinway & Sons pianos – a favourite among concert pianists – the company sells Bach Stradivarius trumpets, Henri Selmer Paris saxophones, CG Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums.

Michael Sweeney, chairman and interim chief executive of Steinway, said the deal represented an “important next step” in the growth of the company.

In 2012, Steinway revenues grew to $353m from $346m the year before, while its earnings rose to $13.5m from $1.6m.

The company, which has approximately 300 showrooms, said in March it would sell its 88-year-old Steinway Hall building, which is across the street from Carnegie Hall in New York, for $46.3m.

The company makes most of its earnings from high-end grand piano sales. From 2005 to 2008, grand piano sales fell an average of 20 per cent annually in the US, Steinway’s regulatory filings show, and the financial downturn further constrained demand.

Steinway said it sold 2,001 grand pianos in 2012. About 45 per cent of sales were in the Americas, 26 per cent in Europe, and 29 per cent in the fast-growing Asia-Pacific region.

“Although mature markets such as the US and Europe remain weak, it is the markets such as Russia, China and India where billionaires are being created every day where you are seeing greater demand for high-end pianos,” said Arnold Ursaner, president of CJS Securities.

Grand piano sales in China, the largest piano market in Asia, have increased annually since 2005.

The Steinway family sold the company, which was founded in 1853 in a loft on Manhattan’s lower west side, to entertainment group CBS in 1972. Since 1996 Steinway has been traded on the New York Stock Exchange under the ticker LVB, for Ludwig van Beethoven.

South Korea-based Samick Musical Instruments is Steinway’s largest shareholder with a 30.3 per cent stake, while hedge fund ValueAct Capital is the company’s second-biggest with a 9.6 per cent holding.

Steinway shares have risen more than 65 per cent in the year to date.

Copyright The Financial Times Limited 2016. All rights reserved. You may share using our article tools. Please don't cut articles from FT.com and redistribute by email or post to the web.

More on this topic

Suggestions below based on Kohlberg