This deal is just one of many that highlight
the increasing power of super brands, which is translated into exorbitant
monetary values. Warren Buffett’s purchase of Heinz, 3G Capital’s acquisition
of Burger King, and now Paulson & Co’s US$512 million takeover of Steinway
Musical Instruments all fit this pattern of the super brands enduring legacy.
Steinway has been in business for 160 years,
but has recently struggled to maintain its profit margins. Its pianos are a
status symbol, a must-have for famous pianists such as Sviatoslav Richter, wealthy
piano enthusiasts and luxury concert halls. The typical Steinway grand piano
costs around US$50,000, but could cost far higher. Steinway also sells many
other notable musical instruments including Bach Stradivarius trumpets, C.G.
Conn French horns, Leblanc clarinets, King trombones, Ludwig snare drums,
Selmer Paris saxophones, and many others. Globally, it employs 1,700 workers
and operates 11 manufacturing facilities in North America and Europe. Steinway
has been looking for a buyer since December 2012, after concluding a 17 month
strategic review prompted by sales growth of just 2% in 2012 and an ailing
share price. At the time of purchase, its market capitalization was US$440
million and the announcement that Paulson & Co would buy 100% of Steinway
Musical Instruments for US$512 million prompted shares to rise to US$40.51 on
the New York stock exchange.
Whilst the purchase is seen as an
unusual move for Paulson & Co, he is no doubt banking on the resilience of
the Steinway super brand to eventually generate increased demand from the
traditional musical markets of North America and Europe as well as from the
emerging musical markets of Asia and Latin America. Moreover, some pruning of
costs and loss-making brands will ensure a highly profitable IPO in a few
years.
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