Kohlberg Kravis Roberts & Co. and Goldman Sachs Group, after calling off their planned $8 billion takeover of high-fidelity audio manufacturer Harman Industries (full story), said Monday they would instead buy $400 million of the company's debt, which Harman will use to fund a share buyback. As part of the agreement, KKR and Goldman will be absolved of the $225 termination fee the deal carried. The cancelled LBO is one of many deals that soured after buyers found themselves unable or unwilling to foot what they would come to perceive as inflated prices in the face of a deflated credit market. In another high-profile case, J.C. Flowers, JP Morgan and Bank of America are being sued by student lender SLM Corp. after reneging on their $25 billion buyout deal (full story). The cordial Harman settlement indicates some corporate boards are taking a more realistic view of current buyout conditions: "There were no positive outcomes here," one person involved in the Harman talks told the Wall Street Journal. "The bottom line is what do you want to do to make shareholders the most amount of money over time?" Sources told the Journal Harman executives didn't want to spend tens of millions in lawyers' fees, and were reluctant to put their business under public scrutiny. Harman shares are up 1.7% to $87.90 on the news; the company now carries a $5.6 billion market cap.
Commentary: Era of Bloated LBO Profits May Be Over - Barron's • Harman Buyout Shelved: Bleak Outlook for SLM Corp and First Data Deals
Stocks to watch: HAR, GS
Earnings call transcript: Harman F4Q07
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