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Why Steinway Is Likely To Be Sold To A Hedge Fund Manager

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Steinway & Sons, the 160-year-old musical instrument maker, is set to change hands.

Last month, a private equity firm emerged as the company's likely buyer. But a mystery bidder — rumored to be hedge fund manager John Paulson — has swooped in at the last minute, and now looks likely to take control of one of the oldest manufacturers in the United States. Paulson made billions betting against the housing market at a time when many thought housing prices could only go up. His reported offer for the company is $458 million.

At first blush, what's going on with Steinway resembles buyout stories you may have heard before. There's a devoted factory workforce where you still count as a "new guy" after 16 years. Meanwhile, in an office far from here, the wizards of finance are concocting a takeover.

But here's where this story veers off-script: Steinway isn't struggling. It actually paid off its debts last month. And these workers aren't particularly worried about their jobs. Bruce Campbell has been on the job 25 years; he's what's called a "final voicer."

"I make the piano sound the way it's supposed to sound," Campbell explains. He says he's pretty sanguine about the buyout: "I'm confident that things will be the same, maybe even get better. We're it. Finest piano in the world."

Arnie Ursaner with CJS Securities says workers are right to be confident.

"This is not wood shop in high school," Ursaner says.

Ursaner is the only stock analyst writing reports on Steinway. He says the land Steinway sits on, in a dense urban neighborhood, is tremendously valuable — but so is the workforce. If you want to make top notch pianos, you have to be here.

"The skills involved in building a custom-made, handmade piano are unique," he says. "If you try to match up the two veneers in a piano, [at Steinway] the person who does that has been trained for ten years."

It's an example of an industrial business in a major American city that's actually doing well. So why is Steinway going private?

Ursaner says it all began around two years ago with an activist investor, David Lockwood, who thought the company should consider splitting the band instruments business — like trombones and tubas — from the piano business. That set in motion a strategic review, and in the end, a healthy company decided to sell itself.

"It has strong cash flow, had an excellent balance sheet, a very stable business," Ursaner says. "This was an opportunistic review of processes rather than a defensive one."

If the mystery bidder's offer of $38 a share is accepted, the company will be valued at close to half a billion dollars.

Like many workers, Bruce Campbell owns stock. He says, however, that he's unlikely to get life-changin payday out of the deal.

"I don't think anyone is gonna get rich off their shares," he says. "Just the big guys."

Still, he could more than double his money.

The sale of Steinway isn't a done deal yet. There's a deadline of midnight tonight for another bidder to make a higher offer.

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