Harman, equity firms reach deal to abandon acquisition

Two private equity groups will terminate their planned $8-billion buyout of Harman International Industries Inc. but will invest $400 million in the company as part of a deal that precludes litigation over the breakup, Harman said Monday.

The takeover by Kohlberg Kravis Roberts & Co. and GS Capital Partners soured in September, when the buyers expressed concern about the audio equipment maker’s financial health.

It was one of several big private equity deals that have suffered during the recent turmoil in the credit markets.

Under the buyout agreement, reached in April, KKR and GS Capital would have paid $120 per share in cash for Washington-based Harman. But in September, the investors said they planned to back out, sending the company’s stock down nearly 25%.

Harman shares sank 53 cents Monday to $85.87.

The deal carried a breakup fee of $225 million, but the two sides said Monday that the fee would not be paid or any litigation filed in connection with the canceled deal.

Instead, KKR and GS Capital, an affiliate of Goldman Sachs, will buy $400 million of 1.25% convertible senior notes from Harman that could be converted to Harman stock if share prices reach $104.

Also, KKR’s Brian Carroll will join Harman’s board of directors.

“Although we do not agree with the reasons for the cancellation of the original merger agreement, we view this $400-million investment as a vote of confidence in our business,” said Sidney Harman, chairman of Harman International.