

Why Steinway Is Likely to Be Sold to a Hedge Fund Manager - splat
http://www.npr.org/blogs/therecord/2013/08/14/211754466/why-steinway-is-probably-selling-itself-to-a-hedge-fund-manager?sc=tw&cc=twmp

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JonFish85
Since the article didn't answer their own question, I'll offer up my own
guesses based on what the article said. Keep in mind that I have very little
respect for hedge fund managers, so that may taint my opinion.

Two sentences stick out: "There's a devoted factory workforce where you still
count as a "new guy" after 16 years."

and

"[at Steinway] the person who does that has been trained for ten years."

If I'm a person looking just at squeezing every last drop of money out of a
company, long-term consequences be damned, this is the very first thing to
ditch. If you're still a new guy after 16 years, you're an expensive new guy.
Let's hire someone who costs, say, 50% and does the work 60% as good as the
older worker. Cut costs, and hope that you can keep revenues high for awhile
and bring costs down. Then shortly you have a multi-billion dollar company
that you paid $500M for. Then, like any "good" hedge fund guy, sell and ditch
it before you have to deal with any long-term consequences.

~~~
keithpeter
Steinway's business depends on the mystique and skillset. These are not
joannas they are selling, and it is a very _analogue_ product. 60% as good as
they are now would be worse than a Chinese mass produced baby grand voiced by
your local tuner. Not the target market, a few scales in the showroom and you
have lost them.

I accept that (say) a chocolate manufacturer or people who make network cards,
or even hifi components, your strategy might work.

~~~
mynameishere
Err, that's his point. You cheapen the product and then sell when profits are
up before the reputation goes down.

~~~
keithpeter
And the point I was trying to make is that the time delay between quality drop
and reduced profits will be very short.

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joonix
So where's the reason? It mentions the real estate, but not its value. They
mention spinning off the band instruments, but what exactly does that
accomplish?

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kevincennis
For anyone interested, there's a really great documentary that I believe is
still on Netflix called "Note by Note: The Making of Steinway L1037".

The process really is amazing.

~~~
mrchucklepants
I watched that a couple of years ago. I have never been able to look at a
Steinway the same way since. The skill those workers have developed is
impressive and inspiring.

~~~
jacquesm
I spent a good 6 months restoring a Bosendorfer (competitor to Steinway, no
umlaut here, sorry), even just repairing a grand piano is a lot of work.
Making one from wood, iron, brass, steel, velvet, felt and shellac is an
enormous amount of work. Those instruments are worth their sticker price, the
brand really is a measure of quality.

The one I did had it's strings cut out, the outside was sanded down to wood,
bits and pieces were strewn all over Poland. I got to know an expert piano
repairman/tuner from the local conservatory and he gave me a mountain of
tips&tricks to work off, without that I would have never managed the job. That
was a fun project. And not just a little bit dangerous, tuning up a fair sized
piano from scratch is a delicate job. You really don't want to unevenly stress
the frame and find out what it is like when 13 tonnes of tension is released
all at once.

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twoodfin
This article does a pretty poor job of explaining why Steinway is going
private. They conducted a strategic review and...?

~~~
antr
... decided to split the business in two. Sell off the non-piano instrument
division and keep the piano business public. Now the piano business is
expected to go private. That implies that the value of the sum-of-the-parts is
less than the value of both businesses running independently. Why? Well, for
starters it seems there isn't that much public investor understanding of how
this company works, its market, etc, and a good indication is that only one
equity analyst (of a not that well known broker) covers the stock.

Additionally, the reporter says the the real estate where the office/factory
is, is extremely valuable (implying that such asset isn't priced in correctly
in the value of the stock - god knows the book value of the land/real estate,
a market sale can generate a considerable one-off dividend).

~~~
joezydeco
My warning bells went off when the article mentioned the real estate value.

I'm predicting someone will scoop up the company, develop the real estate, and
attempt to relocate the entire company to a new cheaper facility somewhere
nearby. But Steinway will most likely lose something special in the process of
moving either through attrition or morale or just plain ol' disrupting the
assembly line and the company will never be the same afterward.

I was reminded of the story of the Vienna Sausage factory in Chicago, our most
famous brand of Chicago hot dogs. They moved to a new facility and instantly
had a quality problem with their hot dogs. Luckily, it was tracked down:

 _" The reason, which they only figured out while chatting about the old days,
was Irving who didn’t make the move to the new plant, but who had wheeled the
hot dogs from the manufacutring room to the smoke house. The thing was that
this took a while and served as a cooling period because it took 30 minutes to
do the walk through the twisting factory. There was no Irving at the new plant
– there was no need – and it was Irving’s trip was the secret ingredient. So
they built a new room to leave them in and cool and that new addition was to
recreate teh effect of Irvings walk."_[1]

[1]: [http://inreblog.com/2008/12/19/in-re-irving-the-secret-
ingre...](http://inreblog.com/2008/12/19/in-re-irving-the-secret-ingredient-
in-vienna-hot-dogs/)

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ivancdg
This brings up an interesting question: if Steinway were liquidated, would the
patents be up for sale?

It is my understanding that much of their unique quality comes from over 100
patents, many of which are over 100 years old [1].

Presumably a competitor could buy the patents and make significant
improvements to their design.

Part of the Steinway brand is built on tremendous marketing savvy, generation
after generation. But the technology remains unparalleled. As a professional
pianist, I wouldn't use anything else for a recording.

Don't get me wrong, I would love for Yamaha, Fazioli or the others to make the
market more competitive. But nothing compares to a Steinway in terms of sound
quality and balance throughout the registers.

All the first-class piano technicians I know agree.

[1]
[http://www.ilovesteinway.com/steinway/parts/steinway_patents...](http://www.ilovesteinway.com/steinway/parts/steinway_patents_1857_1874.cfm)

Edit: IvyMike and ryanhuff brought my attention to the 20 year maximum term of
patent. It is surprising that Steinway's competitors still are unable to match
the quality of sound. Perhaps their technicians are better?

~~~
IvyMike
> over 100 patents, many of which are over 100 years old

Isn't the maximum "term of patent" 20 years or less?

[https://en.wikipedia.org/wiki/Term_of_patent](https://en.wikipedia.org/wiki/Term_of_patent)

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forgotAgain
Article gives no indication as to why.

