Steinway Musical Instruments, best known for its grand pianos, said it would be taken private by hedge fund Paulson & Co in a $512m deal.
Steinway's shares rose to $40.41 in premarket trade, suggesting some investors expect a higher offer.
Steinway completed the sale of its leasehold interest in the Steinway Hall building on Manhattan's 57th Street in June to a partnership led by JDS Development Group for $46.3m.
Steinway said it expects the transaction to close in late September.
The company said on Monday it had received a bid of $38 per share from an unidentified asset manager that topped an offer of $35 per share from Kohlberg & Co. A source identified the new bidder as John Paulson's hedge fund firm.
A leveraged buyout of Steinway would represent an unusual private equity-style deal for hedge fund mogul Paulson, who shot to fame in 2007 with a prescient bet against subprime mortgages and repeated his success in 2009 with a bet on gold.
Steinway said Kohlberg had waived its right to match or beat the Paulson offer, which represents a premium of 31.4% to Steinway's share price prior the Kohlberg offer.
The company said the deal with Paulson did not provide for a "go-shop" period but allowed it to accept a superior offer until the closing of Paulson's tender offer within 25 days.
Steinway would have to pay a termination fee of about $13.4m to Paulson if it accepted another offer. It will pay Kohlberg $6.7m to terminate their agreement.
Steinway, whose pianos have been used by legendary artists such as Cole Porter and Sergei Rachmaninoff and by contemporary ones including Chinese concert pianist Lang Lang, is nearly one-third owned by South Korea's Samick Musical Instrument Co.
Steinway's brands also include Bach Stradivarius trumpets, Selmer Paris saxophones, C.G. Conn French horns, Leblanc clarinets, King trombones and Ludwig snare drums.
Waltham, Massachusetts-based Steinway's sales have been stagnating and it has struggled to keep production margins competitive. Sales rose just 2% in 2012.
The company said in December it had decided not to sell itself after a 17-month-long review of strategic options.
Kohlberg made its offer six months later, valuing the company at about $438m.
