New York (September 24, 2007)–Harman International Industries, set to be bought out for $8 billion, saw its deal collapse on Friday as private equity firms Kohlberg Kravis Roberts & Co. and Goldman Sachs Group attempted to bail out before signing on the dotted line. The Associated Press reported that the agreement went south due to “questions about Harman’s financial health, not because of any financing difficulties in a tight credit market.” Some of those health questions were answered Monday morning, however, when the audio manufacturer announced its fiscal first-quarter earnings will be lower than expected due to increased research and development spending.
The purchase deal made headlines last April when the two buyout firms announced they’d take investors’ shares at $120 per share–a move that in turn led to a considerable run-up in trading. Following Friday’s news, shares dropped to $85, a full 29 percent below the buyout price. The audio manufacturer reacted to the news, issuing a statement, “Harman disagrees that a material adverse change has occurred or that it has breached the merger agreement.”
On Monday morning, 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.” On Monday morning’s news, the shares dropped a further 5.11 percent to $80.93 in early trading.
In Monday’s statement, Dr. Sidney Harman, Executive Chairman, noted, “Harman International is a sound company with exceptional market position and strong future prospects. It is important for investors and our other constituents to be reminded of this, particularly in light of last Friday’s decision by our former merger partners,”
Harman International Industries