Harman's $8bn takeover collapses

The news cannot be sweet music to Harman

Private equity groups Kohlberg Kravis Roberts (KKR) and Goldman Sachs have pulled out of their $8bn (£4bn) deal to buy US hi-fi firm Harman International.

Harman said KKR and Goldman had blamed a "material adverse change" in its business, which as a result breached the buyout agreement.

The hi-fi firm said in a statement that it did not agree with this finding.

Analysts questioned if KKR and Goldman Sachs could still avoid the deal in light of the higher cost of borrowing.

'Changed world'

The global cost of borrowing has soared in recent weeks as banks and other lenders have become much less willing to lend money.

In this current market, I don't know that the economics of the deal made sense anymore Analyst Dan Fuss

This credit crunch was sparked by the downturn in the US sub-prime mortgage market, which has spread to the wider debt markets as global banks try to determine their exposure to the record American sub-prime loan defaults.

The resulting low availability and higher cost of credit directly affects private equity groups, as their very business model involves borrowing large amounts of cash to fund their takeovers.

KKR and Goldman's now abandoned takeover of Harman was first announced as far back as April.

"The world has changed," said Dan Fuss, vice chairman at Loomis Sayles in Boston.

"In this current market, I don't know that the economics [of the Harman deal] made sense anymore and so that caused it to fall apart.

"I strongly suspect a number of other [deals] are not going to make it."