The Deal: New Bid for Steinway Is Sweet Music to Investors' Ears

NEW YORK (TheStreet) -- It's a scherzo-like run for the storied piano manufacturer Steinway Musical Instruments (LVB).

On Monday, Aug. 12, an unnamed private equity company topped Kohlberg & Co., with a $38 per share cash offering, valuing Steinway at about $477 million. That's about $50 million more than the value of Kohlberg's $35 a share offer made July 1. A 45-go-shop period ends Wednesday, the deadline Steinway set for Kohlberg to raise its bid.

Wall Street certainly believes the bidding isn't over. Shares in Steinway rose 9.05% to $39.51 per share by afternoon trading on Monday. That's double what the company was trading at the beginning of this year.

Based in Waltham, Mass., Steinway would only identify the new bidder as "an investment firm with over $15 billion under management." A Steinway representative said the company won't release the name of the competing bidder unless its offer tops that of Kohlberg's. Kohlberg has last right of refusal in the transaction.

This kind of frenzied interest in Steinway represents a dramatic change from last year. In the beginning of 2012, the former owners and executives of the company linked up with its biggest shareholder, Korea's Samick Musical Instruments, in a complicated offering that would buy the band instruments division. That's the division former chairman Kyle Kirkland and former CEO Dana Messina spent almost a decade rolling up within Steinway, a company they put together by buying musical instruments company Selmer in 1994, and then taking it public and acquiring Steinway a year later.

A long period of exploring strategic alternatives followed the offer by Kirkland and Messina. By the end of the year, however, the company said it had ended the exploration and wouldn't pursue a sale.

Just what Kohlberg and the mysterious PE firm see in Steinway is an enigma as well. Steinway is synonymous with the absolute pinnacle in keyboard craftsmanship. A new concert grand easily tops $100,000. However, this is anything but a booming business.

For the six months ended June 30, revenue totaled $169.2 million, a paltry 3% gain over the similar period last year. Pianos-related revenue increased 8%, while the so-called band segment actually lost ground, understandable considering the ongoing cuts in school music programs. Band instruments, which include such brands as Selmer woodwinds, C.G. Conn brass and Ludwig drums, accounted for about 40% of total sales.

The biggest profit boost was the one-off sale of Steinway Hall, on West 57th Street in New York City, for a gain of $22.7 million.

Samick, which owns 31.3% of Steinway, signed a confidentiality agreement following the Kohlberg bid. This regulatory formality gives Samick the option to launch a competing bid, although the South Korean company at the time said there was no guarantee it would do so.

An acquisition by Samick makes some strategic sense. By some accounts, Samick is the world's largest piano and guitar manufacturer and the second-largest musical instruments manufacturer overall behind Japan's Yamaha. Samick's revenue last year totaled 155.6 billion Korean won ($1.4 billion). However, while Samick already owns American piano manufacturers Wm. Knabe & Co. and Kohler & Campbell, it has relatively little penetration in the U.S.

Allen & Co. and Gibson Dunn & Crutcher LLP are representing the seller. Ropes & Gray LLP is representing Kohlberg.

-- Written by Matt Miller and Jonathan Marino in New York

More from Mergers and Acquisitions

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

Apple Buys Tesla? Amazon Buys Sears? 3 Dream Mergers That Just Make Sense

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

AT&T-Time Warner Ruling Could Usher in More Healthcare Deals

Dropbox Soars in Third-Straight Record-Setting Session

Dropbox Soars in Third-Straight Record-Setting Session

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

Decision on AT&T's Merger With Time Warner Marks a Monumental Week for M&A

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women

JPM's Head of North America M&A Wants to Super-Charge M&A and Hire More Women