--Paulson & Co. agree to pay $40 a share for Steinway
--Samick, Steinway's largest shareholder, offered $39
--Steinway shares up 7.8% at $41.28
Steinway Musical Instruments Inc. (>> Steinway Musical Instruments Inc) reached a new merger pact to be taken private by investment firm Paulson & Co. for about $503 million, canceling its previous deal with Kohlberg & Co., though the wrangling for the 160-year-old piano maker may not be done.
Samick Musical Instruments Co. (>> Samick Musical Instruments Co)--Steinway's largest shareholder--indicated Wednesday in a securities filing that it also submitted a bid of its own and has had talks with the company about finding acceptable bid terms.
Paulson, run by hedge-fund manager John Paulson, has agreed to pay $40 in cash for each Steinway share, a boosted offer likely spurred by Samick's interest. The deal, which was unanimously backed by Steinway's independent directors, is expected to close in late September.
Korean instrument maker Samick, which owns 32% of Steinway and is by far its largest shareholder, said it bid $39 a share in cash for Steinway on Tuesday but was soon after told that Steinway accepted another offer.
In its filing, Samick said it spoke with Steinway about the circumstances under which it would agree to support a proposal at a higher price from another bidder but cautioned no such agreements have been entered.
Steinway shares surged 7.8% at $41.28, above the Paulson offer price, on expectations of a potential bidding war.
Representatives for Steinway, Samick and Paulson weren't immediately available for comment.
The new Paulson deal doesn't provide for a "go-shop" period, but the company is allowed to respond to unsolicited offers in some circumstances and can accept a superior offer until the Paulson deal closes, Steinway said, though a breakup of the deal would trigger a termination fee of about $13.4 million. Separately, Steinway terminated its previous merger agreement with Kohlberg and will pay the firm a termination fee of about $6.7 million.
The Paulson agreement comes a day after Kohlberg bowed out of bidding for the company, after agreeing in June to buy Steinway for $35 a share. Steinway said Tuesday that it had received a bid of $38 a share from an undisclosed investment firm that was believed to be Paulson, triggering a three-day window for Kohlberg to make a counteroffer.
The Paulson bid came during a so-called go-shop period, during which a seller will search for bids to top what it has in hand. Go-shop periods rarely ferret out higher offers, however, and often are conducted to combat lawsuits claiming that companies didn't do all they could to get good offers for shareholders.
"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. At $5 per share more than the offer from Kohlberg, this transaction provides shareholders significant additional value for their investment," Steinway CEO and Chairman Michael Sweeney said. "At the same time, our employees, dealers, artists, and customers can rest assured that Steinway will be in excellent hands under John Paulson's stewardship."
Paulson, which is based in New York, rose to fame betting against subprime mortgages ahead of the housing market collapse.
The negotiations come as Steinway strives to better establish itself in fast-growing markets such as China, Russia and Brazil, where it has less brand recognition and faces lower-cost rivals.
The manufacturer of pianos and band instruments, founded in a Manhattan loft in 1853 by German immigrant Henry Engelhard Steinway, signaled last year that it was open to bids.
Though Steinway is based in Waltham, Mass., its pianos are made in the Astoria section of New York's borough of Queens and in Hamburg, Germany.
Earlier this month, Steinway reported its second-quarter earnings surged as sales improved.
For its part, Samick, which was established in 1958, has the manufacturing capability to make more than a half a million guitars a year with factories in Korea, Indonesia, China and the U.S., and also makes stringed instruments.
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