M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

Thursday, September 27, 2007

10 or So Questions for Harman

Harman International is having an investor conference call today at 4:30 p.m. EDT on September 27, 2007.  Those who wish to participate in the call should dial (800) 398-9379 (US) or (612) 332-0107 (International), and reference Harman International. Of course, everyone will want to ask questions on the call about the state and unraveling of Harman's deal to be acquired by KKR and Goldman Sachs Capital Partners. Harman's investor friendly response:

In light of matters disclosed in the Company's September 21, 2007 press release, Harman's management cannot accept questions about the proposed merger with affiliates of Kohlberg Kravis Roberts & Co. L.P. and GS Capital Partners VI Fund, L.P.

Re-establishing investor credibility is hard enough in the wake of a failed acquisition transaction and the yet to be defined claims of a MAC here.  Harman is not doing themselves any service with this prohibition.  I'm not going to be able to make the call, but for those on it, I would ask the following questions (irrespective of Harman's caveat).

  1. In your press release Dr. Sidney Harman referred to KKR and GSCP as your "former merger partners".  What is the status of your merger?  Has it been terminated?
  2. What are the facts underlying KKR's and GSCP's claim that a material adverse effect occurred? 
  3. The Wall Street Journal also reported that you may have breached the requirements in the merger agreement related to limits on capital expenditures.  Is this true?
  4. IF KKRs and GSCP's claims are not true, why have you not initiated litigation to obtain the reverse termination fee of $225 million from them?
  5. You issued your Form 10-K on Aug. 30.  Why did it not contain the new guidance released on Sept 24?
  6. Why do you believe this failure to disclose until then did not violate the federal securities laws?
  7. If you weren't fully aware of these developments until now, what explains the substantial delay in filing the proxy statement and registration statement for this transaction?
  8. When did you first know that GSCP and KKR were claiming a MAC and/or breach of the merger agreement?
  9. If it was prior to last week, why did you not disclose it? Why did this not violate the federal securities laws? 
  10. Was your Board fully informed by your lawyers at Wachtell of the consequences of agreeing to this reverse termination fee of $225 million?

By the way, the Wall Street Journal report that Harman breached its cape ex covenants in the merger agreement is hard to believe.  This covenant simply limits the amount Harman may spend on cap ex and is therefore quite easy to follow.  I believe that if Harman did indeed breach this covenant it would be not only surprising but grossly negligent. 


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