- The Washington Times - Saturday, September 22, 2007


Two private equity firms yesterday backed out of their $8 billion buyout of upscale audio equipment maker Harman International Industries Inc., making it the latest such deal to sour amid tightening global credit conditions.

Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc.‘s private equity unit told the company they are under no obligation to complete the merger because “a material adverse change” in its business had occurred, Harman said.

District-based Harman, whose audio equipment brands include Infinity, JBL and Harman Kardon, said it disagreed, but did not make clear what action, if any, it would take.

Investors punished the stock all day long as word dripped out that KKR and GS Capital Partners were attempting to nullify the deal. By the end of the day, Harman shares had plummeted by more than 24 percent.

A person familiar with the negotiations who asked not to be named because he was not authorized to speak publicly told the Associated Press that the private equity firms sought to squash the deal over questions about Harman’s financial health, not because of any financing difficulties in a tight credit market. The person said the effort to back out was not a negotiating tactic.

Representatives for KKR and GS Capital Partners did not immediately return phone calls yesterday.

Shares of Harman dropped $27.25, or 24.3 percent, to $85. In the past year, the company’s stock has traded between $79.98 and $125.13, which it hit after the deal was announced in April.

KKR and GS Capital Partners agreed to pay $120 per share in cash for Harman and the company’s board approved the deal, which was scheduled to close at the end of the year.

The once-booming private equity industry has stumbled in the past few months as tightening credit conditions have caused investors to balk at funding the deals. Buyout firms — which snap up companies and then take them private — had grown used to easy credit, but recently have had a difficult time persuading banks to underwrite their takeovers.

Cerberus Capital Management in July had to inject more equity into its takeover of Chrysler Group from Germany’s Daimler. More recently, Home Depot lowered the sale price on its wholesale supply unit by 17 percent to complete its sale to private equity firms.

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