This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Paulson Pulls Buffett-Like Move in Steinway Acquisition

Stocks in this article: LVB

NEW YORK ( TheStreet) -- John Paulson's hedge fund Paulson & Co is buying famed piano maker Steinway Musical Instruments (LVB) for $40 a share, in a deal that is reminiscent of the merger and acquisition activity of Warren Buffett-run Berkshire Hathaway (BRK.A).

In buying Steinway, Paulson & Co. is making a bet on a manufacturer of high-end pianos with a history and brand that makes it "moated" from competitors or new entrants to the market. Ninety nine percent of all concert pianists chose Steinway pianos in 2007, the company says on its Web site.

The deal also appears to be an investment in trend such as the rise of mass affluence globally. Many Steinway grand pianos cost in excess of $50,000 on second-hand markets. Paulson & Co. said it will also look to expand Steinway's operations, while retaining the company's renowned quality.

"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," John Paulson said in a statement. "We fully intend to maintain the superb quality of Steinway's musical instruments, which are the finest in the world."

For John Paulson, the acquisition of a publicly traded company is a departure from the hedge funder's investing roots in merger arbitrage.

Often, Paulson & Co. makes large bets on consolidating industries and firms, in so-called merger arbitrage investments that pay off when acquisitions are announced or completed. Recently, Paulson & Co. has made big profits from a consolidation of the wireless industry as also-ran carriers such as Sprint (S), MetroPCS and Leap Wireless (LEAP) cut takeover deals with strategic acquirers.

Wednesday's announcement of a deal for Steinway, however, is more fitting of Warren Buffett's investing sytle. Buffett is known for acquiring businesses with long histories and brands that are insulated from competitors. Unlike Paulson & Co.'s merger arbitrage expertise, Buffett often advocates a holding period of "forever."

To be seen is whether Steinway is a one-off acquisition for Paulson & Co. or whether the hedge fund is diversifying its investing style.

Wednesday's $40 a share offer values Steinway at about $512 million and trumps an initial $35 a share offer from private equity firm Kohlberg & Company made in July. Steinway's board now unanimously supports the Paulson & Co. offer. Kohlberg has withdrawn its offer and is due to receive a termination fee of approximately $6.7 million.

" 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," Michael Sweeney, Chairman and CEO of Steinway, said in a press release.

Steinway shares have risen over 80% year-to-date amid a CEO change, the sale of its real estate assets and competing takeover bids. In March, the company sold a stake in Steinway Hall on West 57th Street in New York City for $46 million.

In 2012, Steinway revenue grew to $353 million, while its earnings rose to over $13 million. In mid-June, the company said it would redeem $68 million in its outstanding debt.

Steinway & Sons was founded in by Henry Engelhard Steinway and his three sons in 1853 in a Manhattan loft on Varick Street. The company has factories in Hamburg and New York, as well as subsidiaries in Berlin, London, Tokyo, and Shanghai. It crafts approximately 2,500 pianos a year worldwide, Steinway says on its Web site.

The company's products also include Boston and Essex pianos, Selmer Paris saxophones, Bach Stradivarius trumpets, C.G. Conn French horns, King trombones, and Ludwig snare drums.

Boutique investment bank Allen & Company is serving as financial adviser to Steinway in its buyout. Skadden, Arps, Slate, Meagher & Flom and Gibson, Dunn & Crutcher are acting as legal advisors to Steinway, while Akin Gump Strauss Hauer & Feld is acting as Paulson's legal advisor.

-- Written by Antoine Gara in New York.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 18,053.71 +23.50 0.13%
S&P 500 2,088.77 +6.89 0.33%
NASDAQ 4,806.8590 +33.3870 0.70%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs