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Yesterday Steinway Musical Instruments, Inc. (Steinway), an American public company listed on the New York Stock Exchange and investment firm Paulson & Co. Inc. (Paulson) today announced that Paulson companies would buy the venerable, and venerated, music company at a price of US$40 per share in a transaction valued in total at approximately $512 million. Closing of the deal will then lead to the privatization of the company, which will lead to the end of the ticker symbol for Steinway – “LVB” – which stands for Ludvig Van Beethoven.
Earlier, at the beginning of July giant private equity firm KKR had also bid for the company, at US$35 per share, which was agreed to by the company at the time, and this deal was expected to make it all the way. However, on August 13, 2013, Kohlberg & Company delivered notice to Steinway that it would not match the terms of a newly-minted Paulson offer. Accordingly, Steinway terminated its previously announced merger agreement with Kohlberg and will pay the firm a termination fee of approximately US$6.7 million.
Steinway Musical Instruments is an American public company, and practically an institution, which is today something of a mini-musical-conglomerate put together over the years, adding to its core high-quality Steinway piano business at different times a cheaper line of pianos produced for them in China by Pearl River, a mid range produced in Japan, and a whole range of band instruments as well.
The original Steinway piano company was founded over 160 years ago, in 1853, by craftsman Henry Engelhard Steinway together with his sons. The company became the world’s premier maker of concert quality grand pianos, with a reputation for hand-crafted instruments with the most resplendent sound and the highest quality. The company itself has changed hands however several times, including in 1995 to the Selmer Co., a maker of band instruments.
The new deal also comes just a few months after Steinway sold its famous New York showroom on West 57th Street, across the street from Carnegie Hall, which was sold in March for a reported $46 million to a group of real estate investors.
There cannot be many visitors to New York who have not, at one time or another, stepped in to the hallowed acoustical chamber of this showroom and tinkled, with varying degrees of musical intent, on the ivories of one or two of its pristine instruments on display there. Well alas, no more, for by September of 2014 Steinway will vacate the premises to make way for a big new condominium development to be constructed next door which will also incorporate the site. The developers have promised to respect the historical significance of the building, but lets wait and see on that one.
John Paulson, President of Paulson & Co. Inc., said yesterday about the announcement of his new purchase… “Steinway has a 160-year history of manufacturing the highest quality pianos and musical instruments. The Company’s proven business model and highly skilled employees provide a strong foundation on which to expand. We fully intend to maintain the superb quality of Steinway’s musical instruments, which are the finest in the world.”
Michael Sweeney, Chairman and CEO of Steinway stated, “The Company conducted a comprehensive “go-shop” process resulting in Paulson’s offer, which reflects the attractive value of the Company’s heritage and growth opportunities. At $5.00 per share more than the offer from Kohlberg, this transaction provides shareholders significant additional value for their investment. At the same time, our employees, dealers, artists, and customers can rest assured that Steinway will be in excellent hands under John Paulson’s stewardship. He shares the Company’s commitment to the musical community and embraces our strategies to fully leverage our premier brands and extend our market leadership. We look forward to much success in this next chapter for Steinway.”
Paulson’s tender offer is required to be commenced within 5 business days and to remain open for at least 20 business days after launch. Any shares not tendered in the tender offer will be acquired in a second-step merger at the same cash price as paid in the tender offer.
The sale of the Steinway company comes at a time of ongoing slow business for Steinway in the United States, but strong demand in its Chinese and other Asian markets, where luxury pianos are still something of an important status symbol for the newly upwardly mobile middle class.
Henry Z. Steinway / Wikipedia
The Paulson bid started out at US$38 per share but was apparently raised to US$40 after there was also an intervening US$39 bid by South Korea’s Samick Musical Instruments Co Ltd., which is already a large existing shareholder of the company. It is not certain if this was a serious bid, with perhaps more still to come, or was just a “spoiler” bid to help push Paulson up a bit – if it was then of course it succeeded.
According to the Steinway announcement, the new merger agreement with Paulson does not provide for a “go-shop” period as such where it can actively go and look for a better deal, yet it does indicate Steinway is still permitted to respond to unsolicited offers in certain circumstances, and ultimately, to accept a better offer if it finds one right up until the closing of the tender offer, subject to payment of another termination fee of approximately $13.4 million, which would this time then be paid to Paulson.
In other words in corporate finance, as in vaudeville, the show is over only when the fat lady stops singing, which in this case means when the money is paid and the shares are transferred… and nobody sues you afterwards. As it is the shares closed yesterday at US$41.29, i.e. above the agreed price, so someone is clearly hoping for an encore from somebody.
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