April 26 (Bloomberg) -- Harman International Industries Inc., maker of Harman Kardon and JBL audio equipment, agreed to be acquired by Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. for about $8 billion.

Investors would get $120 a share in cash, a 17 percent premium, the companies said today in a statement. Harman's stock soared above the offer price as investors bet the Washington- based company would receive a higher bid, a increasingly frequent occurrence in leveraged buyouts.

``People own the stock because of what the stock may do in three or four years, and KKR and Goldman Sachs are going to benefit from that,'' said David Leiker, an analyst with Robert W. Baird & Co. in Milwaukee who rates the shares ``outperform'' and doesn't own them. ``Shareholders are thinking they should see some payment for that appreciation today.''

KKR and Goldman, which are facing opposition to other deals, will give Harman investors the option of being paid in shares of the new company. The so-called stub equity would give them as much as 27 percent of the company and a chance to profit if it thrives under its new owners, including Executive Chairman Sidney Harman.

Shareholders of companies including Aramark Corp. and Stations Casino Inc. successfully held out for sweetened offers in recent LBOs that involved senior management. Clear Channel Communications Inc. has twice delayed a vote on going private while it seeks to win over dissenting shareholders.

Goldman Sachs spokesman Michael DuVally declined to comment. Mark Semer, a KKR spokesman, didn't return a phone call seeking comment.

Options Trading Surge

Harman's stock rose $19.94 to $122.50 at 4 p.m. in New York Stock Exchange composite trading, after reaching $125.13 earlier in the day. The shares had gained 2.6 percent this year until today, trailing the 5.4 percent increase by the Standard & Poor's 500 Index.

Trading in options to buy Harman shares surged 19-fold on April 18, indicating some investors anticipated the buyout. The number of call-option contracts traded in Harman jumped to 11,274, the highest in almost three months. The average call volume for the 20 days prior to that was 594.

The U.S. Securities and Exchange Commission is monitoring well-timed options bets.

Harman will entertain other offers through June 15 under a provision of its agreement with KKR and Goldman. Significantly higher offers may not emerge, RBC Capital Markets analyst Scot Ciccarelli wrote today in a note to investors. That's because the buyout firms are paying 12 times his 2008 estimate for earnings before interest, taxes, depreciation and amortization, a ``fairly large premium,'' the New York-based analyst wrote.

Goldman competition

New York-based KKR, founded by Henry Kravis and George Roberts, has been on a buying spree, disclosing $200 billion of deals in the past 12 months, according to data compiled by Bloomberg. It is among the bidders for TXU Corp., the biggest power generator in Texas, and SLM Corp., the student-loan provider known as Sallie Mae. Goldman Sachs is also an investor in the TXU deal.

Goldman Sachs, also based in New York, said April 23 that its buyout unit had raised $20 billion, the largest-ever LBO fund. Kravis told an audience in New York last week that Morgan Stanley and Merrill Lynch & Co. have managed to balance the interests of investing their own money with serving clients including Kohlberg Kravis. He didn't mention Goldman despite being asked about the firm specifically.

First stereo receiver

Founded in 1953 by Harman and Bernard Karmon, the company's first product was an FM radio tuner. It went public in 1958, the year it began selling the world's first stereo radio receiver.

Harman, tapped in 1977 to serve as an undersecretary of commerce for President Jimmy Carter, sold the company to Beatrice Foods Inc. to avoid conflicts of interest. He bought most of the company back in 1980 and took it public again six years later. In the deal with KKR and Goldman, he will swap half of his 5 percent stake for stub equity.

About two-thirds of Harman's revenue is from sales of GPS, stereo and entertainment systems to automakers including Bayerische Motoren Werke AG, DaimlerChrysler AG and Porsche AG. DaimlerChrysler accounts for 25 percent of sales. Harman earned $255.3 million on sales of $3.25 billion in the year ended June 30.

Pricey Gear

A Harman Kardon system with GPS, audio and speakers costs between $3,000 and $3,500 on a new BMW 3 Series, said Greg Pol, a salesman at the BMW of Manhattan dealership on West 57th Street. Harman's consumer audio and video systems are also sold through Best Buy Co. and Circuit City Stores Inc.

``Harman has huge opportunity overseas, especially in emerging markets where the consumer culture is developing and high-end brands are very sought-after,'' said Jim Hurley, an analyst at Telsey Advisory Group in New York who tracks the luxury-goods sector. ``Harman serves the most resilient portion of the auto industry, so their downside is pretty limited.''

Two of Harman's largest shareholders have opposed other recent LBOs. Fidelity Investments, whose 10.7 percent stake makes it Harman's third-largest holder, publicly rejected radio broadcaster Clear Channel's proposed buyout by Bain Capital LLC and Thomas H. Lee Partners LP. Sophie Launay, a spokeswoman for Boston-based Fidelity, declined to comment.

Shareholder Resistance

T. Rowe Price Group Inc. of Baltimore is Harman's biggest holder, with a 14 percent stake. It's resisting the takeover of Laureate Education Inc., a provider of campus and Internet-based education, by a group including its chief executive officer and KKR and Citigroup Inc. T. Rowe spokesman Brian Lewbart declined to comment.

Buyout firms have announced $266 billion of takeovers this year, a 55 percent increase over the same period last year, according data compiled by Bloomberg. They use a mix of cash from investors plus their own funds and debt secured on the target they buy to finance their deals. The firms typically seek to expand companies or improve performance before selling them within five years to other funds or investors in initial public offerings.

Harman carries $150 million in debt, leaving the buyers plenty of room to borrow to complete the deal. The company also has a steady cash flow, which totaled $400 million last year.

Bank of American Corp., Credit Suisse Group, Goldman Sachs and Lehman Brothers Holdings Inc. are providing debt for the transaction and acted as advisers to the buyers. Simpson Thacher & Bartlett LLP is advising them on legal matters.

Bear Stearns Cos. and Jones Day advised Harman, and Wachtell, Lipton, Rosen & Katz is advising the special committee of Harman's board of directors.

To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

Last Updated: April 26, 2007 17:40 EDT