Paulson agrees to buy Steinway for $512m

Steinway Musical Instruments is set to go private after US hedge fund manager John Paulson raised his offer for the 160-year-old piano maker to $40 a share.

The deal values the Massachusetts-based company at about $512m, which includes net debt, Steinway said on Wednesday.

Steinway terminated an existing agreement with Kohlberg & Co after the private equity group said on Tuesday it would drop out of the bidding process.

Kohlberg's $35 a share proposal, announced in July, was trumped by a new cash offer for $38 a share, Steinway said on Monday.

It is rare for funds run by Mr Paulson, who shot to fame betting against subprime mortgages ahead of the housing-market collapse, to seek a buyout of a listed company.

The bid by Paulson came during a "go-shop" period of 45 days, during which Michael Sweeney, the piano-maker's chief executive, had been soliciting rival bids.

"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.

Steinway's board is recommending that investors tender their shares in Paulson's offer, due to begin within five business days and remain open for a minimum of 20 business days.

The new agreement with Paulson does not provide for a "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 offer period. A break-up of the new deal would trigger a termination fee of about $13.4m.

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 the company still struggles with weak sales in mature markets such as the US and Europe following the financial crisis and its fallout, it is counting on growth in emerging markets. Steinway said last year that it was considering a sale of the 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 sign of the bets investment groups have been 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 each.

Shares in the musical instrument maker jumped 5.7 per cent in early New York trading on Wednesday.

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