October 22, 2007 / 10:36 AM / 12 years ago

KKR, Goldman in compromise with Harman

NEW YORK (Reuters) - Two private equity firms said on Monday that they would invest $400 million in Harman International Industries Inc HAR.N debt as part of a deal to end their proposed buyout and avoid a long and expensive legal battle.

Kohlberg Kravis Roberts & Co LP KKR.UL and Goldman Sachs Group Inc’s (GS.N) private equity arm last month backed out of their $8 billion agreement to buy the audio equipment maker, citing what they said were material adverse changes in its business.

The takeover agreement had a $225 million break-up fee, meaning Harman could pursue various measures to collect the money. Founder and Executive Chairman Sidney Harman on Monday repeated the company’s stance that it disagreed with the reasons the private equity firms gave for backing out.

But rather than engage in a long and potentially expensive legal battle, Harman and the private equity firms came to an agreement, saying there would be no litigation of the matter.

The two firms will instead buy $400 million of 1.25 percent company senior notes that can be converted, under some circumstances, into Harman stock at $104 per share.

The takeover deal had valued Harman at $120 per share.

Harman stock was down 76 cents at $85.64 in morning New York Stock Exchange trade.

KKR and Goldman said they agreed not to sell or hedge their position for at least one year.

KKR member Brian Carroll will join Harman’s board. The company said it planned to use proceeds of the private equity investment to buy back shares.

The agreement is a stark contrast to the ugly battle between a buyout group and student lender Sallie Mae, formally known as SLM Corp SLM.N. The buyout group, led by private equity firm J.C. Flowers, believe a material adverse change has occurred in Sallie Mae’s business. The outcome of the deal, and the $900 million break-up fee, is being slugged out in court.

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