Sept. 21 (Bloomberg) -- Kohlberg Kravis Roberts & Co. and Goldman Sachs Group Inc. abandoned their $8 billion takeover of Harman International Industries Inc., maker of Infinity and JBL audio equipment, citing a decline in the firm's performance.

KKR and Goldman Sachs, both based in New York, told the company today they believed a ``material adverse change in Harman's business has occurred,'' Harman said in a statement. The shares sank 24 percent, the most in a decade.

Harman, which said in the statement it disagreed with the buyers' assessment, didn't describe KKR and Goldman's specific reasons for scuttling the deal. A July decline in demand for high-yield debt and the prospect of a slowing U.S. economy have led private-equity firms and their banks to forsake deals or renegotiate terms more palatable to investors.

``If they're walking away, it's got to be a company or industry issue,'' said Paul Schaye, a managing director with Chestnut Hill Partners in New York who helps private-equity firms find acquisition targets. KKR and Goldman may also be ``posturing'' to pressure Harman to cut its sale price, he said.

KKR spokesman Mark Semer declined to comment. Andrea Raphael, a spokeswoman for Goldman, the world's biggest securities firm, didn't return a phone call seeking comment. Harman spokesman Robert Ryan also didn't return calls.

$225 Million Breakup

Goldman's private-equity arm and KKR, the buyout firm run by Henry Kravis, agreed to purchase Washington-based Harman in April for $120 a share. The sale agreement would require the buyers to pay the company a so-called break-up fee of $225 million should they refuse to proceed with the transaction, unless they can show a severe decline in the company's business.

The agreement, filed with the U.S. Securities and Exchange Commission in April, limits the circumstances in which KKR and Goldman can abandon the deal. The contract rules out a slowdown in the audio industry and the overall economy as permissible excuses, along with missed forecasts that result in a drop in the company's shares.

``Those clauses are written extremely tightly,'' said Colin Blaydon, director of the Center for Private Equity and Entrepreneurship at Dartmouth College's Tuck School of Business. ``They'll need to be willing to be stuck paying the break-up fee at this point.''

Harman sank $27.25 to $85 in New York Stock Exchange Composite trading, the biggest drop since March 1997, according to Bloomberg data. The exchange halted trading in the shares before the market closed, pending the company's statement.

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

To contact the reporters on this story: Jason Kelly in New York at jkelly14@bloomberg.net; Justin Baer in New York at jbaer1@bloomberg.net.

Last Updated: September 21, 2007 18:25 EDT