KKR, Goldman Consider Backing Out of Harman Buyout - WSJ

Includes: GS, HAR, KKR
by: Jonathan Liss

Audio equipment maker Harman International Industries may be the latest leveraged buyout target to see its buyers attempt to use the current credit crunch as an excuse to renegotiate a lower price, or back out of the deal altogether, the Wall Street Journal reports. The buyers, private equity firm Kohlberg Kravis Roberts & Co., which is going public later this year, and Goldman Sachs Group Inc.'s private-equity arm, supposedly came upon "new information that makes them less sanguine about the deal" though it is unclear what that information is. Harman reported disappointing results during its last quarterly report. It will be especially difficult for KKR and Goldman to walk away due to a "material adverse effect" clause in the buyout agreement, which states the buyers may not break the deal over events "generally affecting the consumer or professional audio, automotive audio, information, entertainment or infotainment industries, or the economy or the financial, credit or securities markets." Should KKR and Goldman decide to terminate the deal without due cause, they will owe Harman $225 million dollars, slightly less than 3% of the deal's total value. Before the Journal report came out, Harman shares closed at $112.25 Thursday, well below the buyout price of $120-per-share.

Sources: Wall Street Journal, Reuters, CNNMoney.com
Commentary: KKR and Goldman Capital Take Out Harman International Industries For $8 BillionCEO's Sense of Responsibility Bodes Well For Harman International
Stocks/ETFs to watch: HAR, GS, KKR. ETFs: RCD
Earnings call transcript: Harman F4Q07 (Qtr End 6/30/07)

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