Paulson makes rival offer for Steinway

US hedge fund manager John Paulson has entered into a bidding war for grand piano maker Steinway Musical Instruments, leaving private equity group Kohlberg & Co three days to sweeten its prior offer.

It is rare for funds run by Mr Paulson, who is famous for betting against securities backed by US mortgages during the financial crisis, to seek to buyout a listed company.

The cash offer on Monday of $38 a share, or $475m, tops the offer Kohlberg made on July 1 of $35 a share and represents a premium of almost 5 per cent to the stock's Friday closing price. Paulson & Co. declined to comment.

Steinway on Monday said it had received a "superior" takeover proposal but did not disclose the name of the buyer. The counter-offer came during a "go-shop" period of 45 days, during which Michael Sweeney, its chief executive, has been soliciting rival bids.

The 160-year-old Massachusetts-based company said in a statement that the bidder was an "affiliate of an investment firm with more than $15bn under management".

Paulson & Co has $18bn assets under management, down from a peak of more than $38bn in 2011. The move by Mr Paulson comes as he attempts to find a fresh footing for his funds, after two years of some of the worst investment performance in the industry.

Although Steinway said its financial advisers and legal counsel had deemed the new offer a "superior proposal" to Kohlberg's bid, its board has yet to change its recommendation of the original proposal.

Pending the window of three business days increase its offer, Kohlberg did not respond to requests for comment.

As at July 14, Steinway signed confidentiality agreements with 10 interested parties, one of which was South Korea-based Samick Musical Instruments, the company's largest shareholder with a stake of more than 30 per cent, according to regulatory filings.

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. Steinway sells pianos for as much as $218,000.

Shares in the maker of Steinway & Sons pianos, Bach Stradivarius trumpets and Henri Selmer Paris saxophones closed 9.3 per cent higher in New York trading at $39.59, in an indication that investors expect higher offers. Steinway shares have risen more than 85 per cent in the year to date.

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

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

Earlier this month, Steinway reported net income of $20.2m, or $1.60 per share, for the second quarter of 2013 compared to $2.4m, or 19 cents in the same period a year ago. The company realised a $22.7m gain on the sale of its 88-year-old Steinway Hall building.

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