Goldman, KKR Abandon Harman Buyout

Goldman Sachs Group and Kohlberg, Kravis Roberts & Co. are walking away from their planned $8B takeover of Harman International Industries. Shares of the audio equipment maker experienced their biggest losses in a decade, skidding more than 25% Friday after Goldman and KKR, the buyout firm controlled by Henry Kravis, said they would not proceed with their $120/share deal because a "material adverse change in Harman's business has occurred" -- a claim denied by Harman. Under their agreement, KKR and Goldman may only abandon the deal under certain circumstances; unless they can prove a severe decline in Harman's business, the agreement provides for a $225M break-up fee payable by the buyers. One analyst speculated that Goldman and KKR may be "posturing" to get Harman to lower the purchase price, while a person close to the deal said Harman's future prospects were worsening, and that Goldman and KKR contended Harman violated the agreement by exceeding certain spending restrictions. Meanwhile, the bail out fuels nervousness in an already jittery M&A market amid worsening credit conditions.

Sources: Bloomberg, Wall Street Journal, Reuters
Commentary: Harman Stock Plummets as Goldman Sachs and KKR Cancel Buyout • Era of Bloated LBO Profits May Be Over - Barron's
Stocks/ETFs to watch: HAR, GS, KFN ETFs: RWR, VNQ

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