Deals and IPOs

Harman Warns on Earnings After KKR Deal Sours


Harman International Industries, whose $8 billion sale fell apart last week, warned Monday that quarterly profit would be less than half what Wall Street expected, sending its shares down as much as 8 percent.

The high-end audio equipment maker forecast earnings of 50 cents per share before merger-related costs for the first quarter ending on Sept. 30. Analysts on average were expecting $1.02, according to Reuters Estimates.

Harman shares , which tumbled nearly 25 percent on Friday, were down $4.54, or 5.34 percent, at $80.46 in Monday afternoon New York Stock Exchange trade. Earlier they fell to $78.27, their lowest level in about a year.

The company, which makes speakers for homes and cars under brands that include Harman Kardon and JBL, said results in the first quarter, as well as the previous one, suffered because of higher research and development costs.

Such costs stemmed from "automotive platform awards," Harman said, without elaborating.

Harman estimated first-quarter revenue at $950 million, compared with analysts' expectations of $913.58 million.

The outlook comes after Kohlberg Kravis Roberts and Goldman Sachs Group's private equity arm backed out of their deal to buy the company, citing a "material adverse change" in its business and a breach of the merger agreement.

It was not clear whether Monday's announcement constituted that material change. Company officials were not immediately available for comment.

Harman, which said in a one-paragraph release last week that it disagreed that such a change occurred, has scheduled a conference call with investors on Thursday.

The company's stockholders would have received $120 per share from KKR and Goldman Sachs.

Traders on Friday speculated that the buyout may have fallen through because of Harman's worsening financials, as well as concerns about its relationship with DaimlerChrysler.

A Harman filing showed sales to DaimlerChrysler accounted for 25 percent of its total consolidated net sales. There has been no public indication of a change in this relationship.

Executive Chairman Sidney Harman said Monday's announcement was aimed at reassuring shareholders, although Chief Executive Dinesh Paliwal cited "near-term challenges" and said the company planned to speed up restructuring of underperforming units.

The company gave a mixed outlook for fiscal 2008.

It said increased research and development costs would probably affect the full-year results, but operating income and diluted earnings per share before merger-related costs would equal or exceed those of the previous year.

Harman forecast fiscal 2008 sales of $4.1 billion, compared with the analysts' average estimate of $4 billion.

The fallout of the deal comes as a credit crunch has threatened other leveraged buyouts, with lawyers, bankers and investors looking for ways to exit mergers.