Proposed Harman buyout deal collapses

As of Sept. 21, Kohlberg Kravis Roberts (KKR) and the Goldman Sachs Group have abandoned their proposed $8 billion takeover of Harman International Industries, parent company of the Harman Pro Group. KKR and Goldman Sachs, both based in New York, cited a “material adverse change” in Harman's business according to a statement issued by Harman. Just two days earlier, KKR had won competition clearance from the European Commission (EC), apparently clearing a potentially significant hurdle to the purchase.

Harman immediately issued a statement noting its disagreement with the buyers' assessment. No more specifics were offered to explain the failed buyout, although the prospect of a slowing U.S. economy have led other private-equity firms and their banks to renegotiate terms to make them more palatable to investors.

Goldman's private-equity arm and KKR, the buyout firm run by Henry Kravis, had agreed to purchase Harman in April for $120 a share. The sale agreement would require the buyers to pay the company a termination fee of $225 million should they refuse to proceed with the transaction, unless they could show a severe decline in the company's business. The agreement, filed with the U.S. Securities and Exchange Commission, limits the circumstances in which KKR and Goldman could abandon the deal. The contract rules out a slowdown in the audio industry and the overall economy as permissible excuses, along with missed forecasts that result in a drop in the company's shares.

In a subsequent press release, Harman issued its forecast for fiscal 2008, with a sales expectation of $4.1 billion, as compared with $3.55 billion in fiscal 2007. Executive chairman Dr. Sidney Harman stated, “Harman International is a sound company with exceptional market position and strong future prospects. It is important for investors and our other constituents to be reminded of this, particularly in light of last Friday’s decision by our former merger partners.”

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