Kohlberg & Goldman Sachs Leave Harman At The Alter

Posted on Sep 25, 2007

Kohlberg Kravis Roberts & Co. and Goldman Sachs Group have jumped ship at the last minute in their buyout of Harman International Industries, valued at close to $8 billion. The deal reportedly tanked due to questions about Harman’s current financial situation.

In reality, Kohlberg and Goldman probably got their grubby hands on a leaked copy of Harman’s upcoming financial reprt. The audio manufacturer announced its fiscal first-quarter earnings will be lower than expected due to increased research and development spending. ah-huh… The audio manufacturer issued a statement, “Harman disagrees that a material adverse change has occurred or that it has breached the merger agreement.”

We reported on the deal last April when Kohlberg Kravis Roberts & Co. and Goldman Sachs Group announced a buyout at $120 per share. The news of the collapse, Harman’s shares dived to $85, a full 29 percent below the buyout price.

Yesterday, Harman announced it expects earnings of 50 cents per share in its first quarter and sales of $950 million; analysts had generally expected earnings of $1.02 a share, derived from sales of $934.4 million. Chief Executive Dinesh Paliwal said in a statement released by Harman, “The fourth quarter of fiscal 2007 and the first quarter of fiscal 2008 were affected by increased R&D costs, primarily related to recent automotive platform awards. We expect substantial margin improvements over the course of fiscal 2008 as we work through these costs.” After the announcement, Harman’s shares dropped a further 5.11% to $80.93 in early trading.