Steinway Stock Hits The Wrong Chord With Investors

Steinway Musical Instruments Inc. shares struck a sour note with investors in their first day of trading.

Stock in the 143-year-old company known as the Tiffany of piano makers fell 7.2 percent on concern the market for $100,000 instruments is limited and too vulnerable to economic cycles.

Steinway Musical’s weak initial public offering comes at a poor moment for new issues, investors said, and marks the first time this year that a Goldman, Sachs & Co.-led IPO dropped below the offer price on its first trading day.

“It’s not a great investment,” said Matt Ziehl, assistant portfolio manager of the Landmark Small Cap Equity Fund in New York. “They’re charging too much for a company with limited growth prospects.”

Steinway Musical priced the offering at $19, lower than its originally planned $20 to $22 price range. The shares still fell $1.37-1/2 to $17.62-1/2 in trading of 2.41 million.

Steinway, run by two former Drexel Burnham Lambert Inc. investment bankers, is asking too much for a debt-laden company whose top-end grand pianos cost more than $100,000, some money managers said.

Ziehl, who said his fund looked at the offering and decided against buying, thinks the shares are worth $13 to $15. Steinway sold 3.57 million shares, a 37 percent stake, at 19 to raise $67 million. The Elkhart, Indiana-based firm had planned to sell 4.23 million shares at $20 to $22.

At current prices the company, which also sells trumpets and other instruments through its Selmer Industries Inc. unit, is valued at about $168 million.

Steinway Musical plans to use the proceeds to pay off part of its $171 million in debt, mostly junk bonds, from the $95 million leveraged buyout of Selmer in 1993 and the $100 million buyout of Steinway & Sons in 1995. The buyouts were led by two 34-year-old investment bankers, Dana Messina and Kyle Kirkland, who trained on Michael Milken’s high-yield bond desk at Drexel Burnham.

Some of the stocks that moved substantially or traded heavily Friday:

NASDAQ

Circon, up $7.12-1/2 at $19.25.

U.S. Surgical launched an unsolicited takeover bid for smaller rival Circon Corp. valued at $18 a share, or about $230 million. Circon is the largest producer of advanced endoscopes and miniature color-video systems for medical applications, with annual sales of about $160 million. U.S. Surgical is one of the largest makers of surgical instruments.

Patterson Dental, down $7.12-1/2 at $22.75.

The dental products distributor said a slowdown in equipment sales will hurt first-quarter results. Patterson said it expects to report earnings for the quarter ended July 27 in the range of 29 cents to 32 cents a share, which is below analyst forecasts.

Strattec Security, down $2.87-1/2 at $15.

The maker of automotive locks and keys reported late Thursday that continued high freight costs and scrap prices dropped fourth-quarter earnings well below expectations. Sales jumped 35 percent to $38.9 million in the fourth quarter ended June 30, and net income more than doubled to $1.6 million.

WellCare Management Group, down $1 at $8.37-1/2.

The health-maintenance organization said it is being investigated by the SEC. No further information on the investigation was available. Earlier this year, WellCare stock was nearly removed from the Nasdaq Stock Market because of financial statement delays.

NYSE

Micron Technology, up $3.62-1/2 at $22.87-1/2.

The FAA plans to use Micron’s products to alert officials to possible bombs in baggage. Micron products currently used to track shipping containers would be used to determine if luggage is loaded on a plane without a corresponding passenger.