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The Deal: Steinway Trading Suggests Bidding Not Over

NEW YORK (TheStreet) -- Steinway Musical Instruments (LVB) shares surged 6.27% to $40.67 after the company agreed to a sweetened $512 million buyout offer from Paulson & Co. though investors in the piano maker appear to believe the dance might not be over yet.

Waltham, Mass.-based Steinway on July 1 agreed to be acquired by Kohlberg for $438 million, or $35 per share, but the deal included a 45-day go-shop period. The company said Monday that it had received a competing bid, and on Wednesday said that it has agreed to be bought by Paulson for $40 per share.

With shares trading above the $40 offer price, that suggests traders believe another bid will come.

"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," Steinway chairman and CEO Michael Sweeney said in a statement. "At $5 per share more than the offer from Kohlberg, this transaction provides shareholders significant additional value for their investment."

Steinway said it has received notice from Kohlberg that the firm would not match the Paulson offer, meaning that Steinway will pay the firm a $6.7 million termination fee. But shareholders appear unconvinced that the auction is over, sending shares of the piano maker above the $40 per share buyout price on Wednesday morning. The company's shares traded up 5%, or $1.95, to $40.25 in the premarket.

The deal is subject to U.S. and German regulatory approval, and is expected to close in late September.

The Paulson deal does not include a "go-shop" period, though Steinway said it is permitted to respond to unsolicited offers and accept a superior proposal until the Paulson tender closes. Should a superior offer emerge and be accepted, Paulson could be owed a termination fee of $13.4 million.

John Paulson, founder of the firm, in a statement praised Steinway's reputation for manufacturing high-quality instruments, saying "the company's proven business model and highly skilled employees provide a strong foundation on which to expand."

Steinway is receiving legal advice from Gibson, Dunn & Crutcher's John Gaffney, Aaron Holmes, Jennifer Wang and Yi Sun; and a Skadden, Arps, Slate, Meagher & Flom team including Kenton King, Amr Razzak, Jason Tomita, Carrie LeRoy, Michael Bergmann, Alessandra Murata, Ulrich Ziegler, Jane Kroesche, David Kitchen, K. Kristine Dunn and Jessica Hough.

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