(Adds more details on the deal, share reaction)
NEW YORK, July 1 (Reuters) - Steinway Musical Instruments Inc., the 160-year-old manufacturer of pianos, saxophones and trumpets, said on Monday it had agreed to be acquired by private equity firm Kohlberg & Co. in a deal valued at about $438 million.
The Waltham, Massachusetts-based company's pianos have been used by legendary artists, including Cole Porter and Sergei Rachmaninoff, and by contemporary ones like Chinese concert pianist Lang Lang. Its brass and woodwind instruments include the venerable C.G. Conn and Selmer brands.
The announcement came six months after Steinway, an American icon synonymous with handmade grand pianos, said it had decided not to sell itself following a 17-month-long exploration of strategic alternatives, including speaking to private equity.
"Our agreement with Kohlberg represents an exceptional valuation for our shareholders, while also representing an important next step in the growth of Steinway," Steinway's interim CEO Michael Sweeney said in a statement.
Kohlberg offered $35 per Steinway share in cash, a 15 percent premium to Steinway's Friday trading close of $30.43 and a 33 percent premium based on the average closing price during the last 90 trading days, the company said.
Steinway shares were trading at $35.16 in early Morning trading in New York, indicating investors believed a higher offer was possible. Steinway said it had agreed to a 45-day "go-shop" period with Kohlberg that would allow it to solicit offers from other potential buyers.
Steinway has struggled to keep its production margins competitive amid stagnant sales. Still, its first-quarter earnings in May showed cost-cutting was paying off, with income before income taxes jumping to $4.3 million from $959,000 a year ago.
An in-principle agreement to sell its band instrument division to an investor group led by two of its board members, Dana Messina and John Stoner, was scrapped last year in light of its operating performance, Steinway said at the time.
In July 2011, Messina, Stoner and other members of management made an offer for Steinway's band instrument and online music divisions, prompting the company to set up a special committee to assess it.
Later that month, Steinway asked investment bank Allen & Company LLC to assist the special committee in exploring strategic alternatives that could also include selling the whole company outright.
By October 2011, Messina had stepped down as CEO of the company after 15 years at the helm to pursue his bid, but remained a board member. He was replaced by Sweeney, a chairman of the board of Star Tribune Media Holdings and a former president of Starbucks Coffee Company (UK) Ltd.
Last week, Steinway completed the sale of its leasehold interest in the company's flagship Steinway Hall building, on Manhattan's 57th Street, to a partnership led by JDS Development Group for $46.3 million in cash.
According to its website, Steinway & Sons, the company's piano unit, opened the first Steinway Hall on 14th Street in Manhattan in 1866.
With a main auditorium of 2,000 seats, it became New York City's artistic and cultural center, housing the New York Philharmonic until Carnegie Hall opened in 1891. These days, Steinway Hall is a showroom for the company's instruments.
Steinway has said it will be able to remain in its present location in New York until the end of 2014 and that it has already begun the planning process for a new Steinway Hall.
Kohlberg, a Mount Kisco, New York-based buyout firm, announced in April that it had raised its seventh private equity fund, securing $1.6 billion from investors. It was founded in 1987 by Jerome Kohlberg, who in 1976 co-founded KKR & Co. with Henry Kravis and George Roberts.
Allen & Company, Skadden, Arps, Slate, Meagher & Flom LLP and Gibson, Dunn & Crutcher LLP advised Steinway and Ropes & Gray LLP advised Kohlberg on the deal. (Additional reporting by Maria Ajit Thomas in Bangalore; Editing by Dan Grebler)