Wall Street has its own brand of breaking up. There may not be 50 ways but there are at least two -- the easy way and the hard way. According to the New York Times, KKR and The Goldman Sachs Group (NYSE: GS) are splitting with Harman International (NYSE: HAR) the easy way, while J.C . Flowers is taking the hard route to killing its deal with SLM Corp (NYSE: SLM).
The easy way, in the Harman case, is for the buyers to buy $400 million worth of Harman bonds instead of paying $8 billion to own the company. Under the new agreement, the buyout deal struck in April will be dissolved, with no litigation or payment of the $225 million termination fee. Instead, KKR and Goldman will buy bonds that can be exchanged for Harman shares at $104, below the $120-a-share price of the original offer -- but much higher than its current $85.87.
Harman gets some cash and saves face while KKR and Goldman get out of investing in a cratering company -- HAR's earnings of 50 cents a share for the most recent quarter are expected to be less than half of the $1.02 analysts had forecast.
The hard way, as in the SLM deal, is to go to court. That's where Flowers is fighting to end his $25 billion merger agreement with Sallie Mae due to what he believes is a Material Adverse Change (MAC) resulting from a recently passed bill -- September 27th's College Cost Reduction and Access Act -- that limits student loan subsidies. SLM thinks this MAC claim is bunk and wants the deal to go through or, if not that, a $900 million breakup fee.
In the end, deal divorce is all about money, and it looks like Flowers will end up with less of it than KKR and Goldman.
Peter Cohan is president of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.
