Harman Deal Makes a Big Noise

Investors cheered an $8 billion buyout agreement for the audio-equipment maker, which contains an unusual equity component

The name behind JBL, Infinity, and other audio brands could be the latest prize in the private equity parade -- with a twist. Kohlberg Kravis Roberts & Co. L.P. and Goldman Sachs' GS Capital Partners said Apr. 26 that their affiliates are planning to buy the audio equipment maker Harman International Industries, Inc. (HAR) for $8 billion. It's the private equity firms' latest deal in a market that has been on the rampage.

The Harman deal is expected to close in the third quarter of 2007, subject to approvals. Harman stockholders will be able to get $120 per share in exchange for their holdings, or they can elect instead for up to a 27% equity stake in the new company instead, according to a press release Apr. 26.

Here's the wrinkle: The stock of the new company will be registered with the U.S. Securities and Exchange Commission, but not listed on an exchange, although the buyers expect that there will be market makers in the stock. The company's CEO Sidney Harman, who owns around 5% of the company's stock outstanding right now, will participate in the same election process and promises to elect half his current holdings. Harman may also solicit proposals for alternative transactions from third parties for a 50-day period ending on June 15.

Other outfits could turn up the volume, however. "We expect bidders to emerge," Standard & Poor's Corp. analyst James Peters said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)

Investors responded to the news con brio, bidding up Harman's stock by 19.4% to $122.50 per share in New York Stock Exchange trading Apr. 26.

"We are pleased to reach an agreement with KKR and GSCP that is in the best interest of our stockholders, presenting them with excellent value for their shares and the opportunity to participate in Harman's future growth," CEO Harman said in the press release Apr. 26.

Harman isn't the first. Private equity firms, with bulging wallets, are elbowing one another over to buy companies in recent months. The Chicago-based Equity Office Properties Trust (EOP) said in November that it would sell itself to New York's Blackstone Group for $39 billion, including debt. Even at that astronomical price, Blackstone had to win a bidding war for the company against the office properties owner Vornado Realty Trust (VNO). Texas Pacific Group and other firms soon topped that one by offering $45 billion for Texas power company TXU Corp. (TXU).

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