Steinway Musical Instruments Inc , best known for its grand pianos, agreed on Wednesday to be taken private by Paulson & Co after the hedge fund firm raised its offer to $40 per share, valuing the 160-year old company at about $512 million.
Steinway shares rose above the Paulson bid, touching a high of $41.60, suggesting some investors expect a higher offer.
The piano maker caters to the tastes of the rich and famous, a market known to be more resilient to economic shifts, said CJS Securities Inc analyst Arnold Ursaner.
"When you are dealing with any global luxury brand, the value is in the eye of the beholder. To me it's no different than a work of art, it's what someone is willing to pay for that unique asset. The piano business of Steinway has a great pedigree and is not easy to come by," Ursaner said.
A leveraged buyout of Steinway represents an unusual private equity-style deal for hedge fund mogul John Paulson, who shot to fame in 2007 with a prescient bet against subprime mortgages and repeated his success in 2009 with a bet on gold.
"We will proudly support the company's legacy as the premier global piano manufacturer, a reputation earned with an uncompromising commitment to quality appreciated by almost all of the world's most demanding pianists," Paulson said in a statement.
He added he does not plan to close, relocate or change any of the company's manufacturing operations.
Steinway said Paulson & Co raised its offer to $40 a share from $38 following a $39 bid by South Korea's Samick Musical Instruments Co Ltd <002450.KS>.
Steinway said on Tuesday that private equity firm Kohlberg & Co, which agreed to a deal with Steinway in July for $35 per share, had waived its right to match or beat Paulson's offer, which represents a premium of 31.4 percent to Steinway's share price prior to the Kohlberg offer.
Steinway said the deal with Paulson did not provide for a "go-shop" period during which the company could actively seek out competing bids. But Steinway is allowed to accept a superior offer until the closing of Paulson's tender offer, within 25 days.
Steinway would have to pay a termination fee of about $13.4 million to Paulson if it accepted another offer. It will pay Kohlberg $6.7 million to terminate their agreement.
PORTER AND RACHMANINOFF
Steinway, whose pianos have been used by legendary artists such as Cole Porter and Sergei Rachmaninoff and by contemporary ones like Chinese concert pianist Lang Lang, is nearly one-third owned by Samick, according to Thomson Reuters data.
Founded in 1958, Samick already manufactures pianos in the United States and has a production capacity of more than a half million guitars per year through factories in South Korea, Indonesia, China and the United States, according to its website.
Steinway's brands also include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums.
Waltham, Massachusetts-based Steinway's sales have been stagnating and it has struggled to keep production margins competitive. Sales rose just 2 percent in 2012.
The company said in December it had decided not to sell itself after a 17-month-long review of strategic options.
Kohlberg made its offer six months later, valuing the company at about $438 million.
Steinway completed the sale of its leasehold interest in the Steinway Hall building on Manhattan's 57th Street in June to a partnership led by JDS Development Group for $46.3 million.
Paulson is paying between 10 and 10.5 times Steinway's current earnings before interest, tax, depreciation and amortization, Ursaner said.
Steinway said it expects the deal to close in late September.
Allen & Co LLC is financial adviser to Steinway. Skadden, Arps, Slate, Meagher & Flom LLP and Gibson, Dunn & Crutcher LLP are its legal advisers. Akin Gump Strauss Hauer & Feld LLP is Paulson's legal adviser.
(Reporting By Maria Ajit Thomas in Bangalore and Greg Roumeliotis in New York; Additional reporting by Svea Herbst-Bayliss in Boston; Editing by Ted Kerr and John Wallace)