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Steinway plays with Paulson

August 14, 2013: 1:12 PM ET

steinway_logo_upclose_3Steinway sale teaches that even private equity firms have limits.

FORTUNE -- Piano maker Steinway & Co. (LVB) has agreed to be taken private. Again.

The Waltham, Mass.-based company announced this morning that it will be acquired for approximately $512 million, or $40 per share, by hedge fund manager Paulson & Co.

That's around 14% higher than Steinway's previous $35 per share deal with private equity firm Kohlberg & Co., which has said that it will not increase its offer (which already represented a 15% premium to Steinway's most recent trading price). It also means that Steinway will be required to pay Kohlberg a $13.35 million termination fee.

To be sure, traders had suspected a rival offer was coming. Steinway shares jumped past Kohlberg's $35 offer on the day it was announced, and had remained there throughout the past five weeks.

But the result of this process should teach the market that private equity firms do have actual price ceilings.

Kohlberg isn't commenting on the process, or if it would have rivaled the $38 per share that Paulson initially offered. But clearly $40 was too rich for the Mt. Kisco, N.Y.-based firm, which currently is investing out of a $1.6 billion fund. Mutual fund managers and others often seem to believe that private equity firms are bottomless capital pits whose price discipline can be extinguished by just the slightest of outside pressures.

Not so in this case. Hopefully that isn't what Paulson was counting on.

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About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

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