Kohlberg Kravis Roberts and Goldman Sachs ( GS) ended their plan to buy Harman International ( HAR), instead agreeing to invest $400 million in the audio-products maker's debt.
The new deal marks a détente between Harman and its private-equity buyers, who last month sought to pull out of the $8 billion pact because of a "material adverse change" at the company. Harman disputed the cancellation of the April deal. Under the new agreement announced Monday, KKR and Goldman will purchase $400 million of Harman's 1.25% senior convertible notes. They agreed not to sell or hedge their position for at least one year. Harman will use the money to repurchase stock under an accelerated share repurchase program. "We are pleased to have reached an understanding with KKR and GSCP," said Harman Chairman Sidney Harman. "Although we do not agree with the reasons for cancellation of the original merger agreement, we view this $400 million investment as a vote of confidence in our business and its prospects for continued growth." The Harman deal was one of the notable buyouts to fall apart in the aftermath of this summer's credit crunch. Another major pact, J.C. Flowers' agreement to buy student lender Sallie Mae ( SLM), remains locked in a tight battle as the private-equity firm looks to pull out of the deal. Shares of Harman were up 1.3% to $87.50 in premarket trading. The original buyout called for a purchase price of $120 a share.