WASHINGTON (AP) - An effort by two private equity firms to back out of their $8 billion buyout of Harman International Industries Inc. on Friday sent shares of the upscale audio equipment maker plummeting by more than 15 percent.
Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc.'s private equity unit are trying to squash the deal over questions about Harman's financial health, not because of any financing difficulties in a tight credit market, a person familiar with the negotiations who could not be quoted on the record told The Associated Press. The person said the effort to back out is sincere, and not a negotiating tactic.
The Wall Street Journal reported earlier Friday that the investors may try to renegotiate the price or back out of the deal. The Journal report, attributed to anonymous sources, said the prospective buyers also were concerned about lackluster results at Harman.
Representatives for KKR and GS Capital Partners declined to comment on whether the takeover of Harman would be completed by the end of the year as planned. A representatives for Harman did not return calls.
Shares of Harman dropped $17.35, or 15.5 percent, to $94.90 in midday trading. In the past year, the company's stock has traded between $79.98 and $125.13, which it hit after the deal was announced in April.
The possibility of the buyout souring comes a day after SLM Corp., commonly known as Sallie Mae, issued a statement saying it expects the investors seeking to buy it for $25 billion to honor their commitments.
SLM was responding to a New York Times report, also attributed to anonymous sources, that said the buyout consortium of private equity firm J.C. Flowers & Co., Bank of America Corp. and JPMorgan Chase & Co., plans to seek a lower price.
The Sallie Mae deal includes a $900 million breakup fee, compared with a $225 million termination fee in the Harman transaction.
In recent months, banks have become nervous about massive loans on their books and have asked private equity firms to front more capital and lessen the amount of money borrowed. Cerberus Capital Management in July had to inject more equity into its takeover of Chrysler Group from Germany's Daimler. More recently, Home Depot lowered the sale price on its wholesale supply unit by 17 percent to complete its sale to private equity firms, and KKR is negotiating the financing terms for its $26 billion buyout of First Data Corp.
KKR and GS Capital Partners agreed to pay $120 per share in cash for Harman and the company's board approved the deal. Its executive chairman, Sidney Harman, would retain that post after the acquisition.
Harman's wife is Rep. Jane Harman, D-Calif., chair of the House Homeland Security subcommittee on intelligence.
Harman last month reported a bump in fourth-quarter earnings due to a tax gain and higher sales in its automotive business.
AP Business Writer Joe Bel Bruno in New York contributed to this report.
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