Steinway

Our recommendation for Steinway & Sons is to keep the Boston product line. Furthermore, we recommend that Steinway eliminate the sub-branding strategy and create a separate brand architecture for the Boston product line. The Boston product line provides Steinway with a high-margin product in the mid-market price range and allows Steinway to capture sales that might otherwise go to mid-priced competitors. However, the current Boston sub-branding strategy introduces the risk of diminishing and overextending the pre-eminent Steinway brand image. Thus, a wholly distinct brand architecture should be created for the Boston product line.

Despite the critics assessment that Kirkland and Messina overpaid for Steinway, our valuation of the firm's worth of 107.45 million indicates that the critics initial assessment was incorrect. While 64 groups bid on Steinway, the winning bid of $101.5 million was not the highest received by the Birminghams, signaling that the market valued the firm to be worth at least the bid price. The pre-eminent brand image and the prestige associated with the legendary piano maker likely contributed to the firm's healthy market value. In addition, to clarify any misunderstanding, the YTM is slightly greater than the 11% coupon rate because the bonds sold at a discount from their face value.

We perceive the growing Asian market as a "double-edge sword." While capturing part of the Asian market presents significant growth opportunity, Yamaha, the largest producer of pianos in the world, has already established significant presence in the Asian market. In addition, Yamaha has stated its intention to surpass Steinway as the maker of the highest quality grand pianos in the world: "we want to catch up with Steinway." Thus, too strong a reliance on the growing Asian market is perceived to be risky. Steinway must broaden its market focus.

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