KKR, Goldman Cancel Harman Buy for Lesser Investment

Kohlberg Kravis Roberts and Goldman Sachs will cancel their $8 billion takeover for Harman International Industries, but will invest $400 million in convertible notes that the audio systems maker will use for a stock buyback, the companies said Monday.

The deal settles a legal dispute over whether the two private equity buyers should pay a $225 million break-up fee after they backed out of the $8 billion deal to buy Harman last month.

With the agreement KKR and Goldman will not need to pay a break-up fee.

In addition, KKR partner Brian Carroll will be added to the Harman board.

The buyers backed out of the deal on Sept. 21, claiming Harman had seen a "material adverse change" in its business, causing the shares to fall 25 percent in one day.

Harman subsequently forecast quarterly earnings well below what analysts were expecting, because of higher research and development costs and other issues.

Harman objected to the pullout at the time, which valued the company at $120 per share.

Harman shares, which closed at $112.25 on Sept. 20, slumped 25 percent after news of the deal's collapse. The shares closed at $86.40 on Friday, down $1.18.

Proceeds of the $400 million investment will be used to repay Harman debt, the paper said.

The reported deal comes amid a general pullback in merger deals as credit markets tighten. A representative of KKR could not be reached for comment.