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Tickling the Ivories

Watch how John Paulson’s pianos get made

Steinway Musical Instruments is music to John Paulson’s ears, but is his purchase of the 160-year-old US manufacturer a vanity buy or a real business opportunity?

Paulson made the rare decision to buy the publicly-listed company after private-equity firm Kohlberg & Company* declined to match his $40-per-share offer, valuing the company at $512 million.

A crowded field of bidders—and rumors that a new bid could be forthcoming, which has the company’s stock priced at $41.30 at the time of this writing—suggest that there’s some kind of value in the company, which owns piano-maker Steinway and Sons as well as Conn-Selmer, which makes a variety of other musical instruments.  Sales have been stagnating and margins have been dropping—note that in the video above, production methods for the flagship product have changed so little that the same narration from the 1980 factory tour can be used in today’s film.

But the stock’s only analyst says the company’s balance sheet is in fine shape, its workers have hard-to-replace expertise, and the company’s real-estate holdings are strong. It’s possible Steinway could spin-off Conn-Selmer to strengthen the core piano company, too. Like many luxury brands in advanced economies, it hopes that its name will help it find sales growth in developing markets looking for products with strong reputations; last year it reported strong sales in China.

Correction (8/14/13): An earlier version of this article incorrectly named a rival bidder for Steinway as KKR; it was Kohlberg & Company.

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