Monday, 22 October 2007

KKR / Goldman weasel out of Harman breakup fee

A month ago I noted that KKR and Goldman Sachs were trying to weasel their way out paying a $225 million break-up fee since the proposed $8 billion Harman deal fell through.

Officially the only way out of the deal without paying the breakup fee was if KKR and Goldman could show that Harman had undergone a severe decline in their business. Finally today it seems the parties have come to compromise.

KKR, Goldman Buy Harman Bond, Won't Pay Breakup Fee

Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. agreed to buy $400 million of bonds of Harman International Industries Inc. after they abandoned their $8 billion leveraged buyout last month.

The buyers will avoid a lawsuit from the maker of audio equipment, and won't have to pay $225 million in breakup fees for aborting the deal, Washington-based Harman said in a Business Wire statement today. The bonds will pay 1.25 percent annual interest and will convert into Harman shares if the price reaches $104, $16 less than Goldman and KKR's original bid.

"Although we do not agree with the reasons for cancellation of the original merger agreement, we view this $400 million investment as a vote of confidence in our business,'' Harman founder Sidney Harman said in today's statement. Harman said it will use the money to accelerate a stock buyback.

Interestingly the company publicly stated they did not agree with Goldman and KKR's reason for originally abandoning the deal. A bit of bad blood there perhaps but with the $400 million bond issue now in play it's all water under the bridge. However not as happy ending for LBO banker J. Christopher Flowers:

KKR is settling with Harman on the same day as LBO banker J. Christopher Flowers's lawyers meet in court to fight a lawsuit from SLM Corp. forcing him to make good on his $25.3 billion offer for the student-loan provider known as Sallie Mae. Flowers, who faces $900 million in break fees, had cut his bid last month, saying Sallie Mae had suffered a material adverse effect.

This won't be last lawsuit we hear of in the now almost totally defunct LBO market. Along with lawsuits against mortgage brokers and homebuilders brewing, lawyers sare set to pocket decent bonuses this year.