bloggingbuyouts

This will begin to seem like a broken record now. KKR and Goldman Sachs (NYSE: GS) are close to either renegotiating or walking away from a deal to buy Harman International (NYSE: HAR), the big audio components company (check the name on your computer speakers). According to The Wall Street Journal, due to "a credit crunch and lackluster financial results from Harman, KKR and other investors in the deal have soured on the transaction."

Most buyout deals have clauses that say that if a company's fortunes go through a "material change," buyers can back out. But operating income at Harman in the June quarter was over $81 million on revenue of $911 million. Not as good as some quarters in the past, but hardly a disaster.

The buyout does have a $225 million break-up fee, but Harman's board is likely to insist that KKR and Goldman stay in the deal. The stock trades at about $112 a share, which is well below the $125 offer. Harman traded under $100 before the offer to take the company private was made.

Although KKR's and Goldman's reputations could be harmed by walking on the deal, they may feel that it is better to face this kind of setback than to lose billions of dollars on a company they no longer believe can cover the debt that a buyout would require. But, Harman's board and management are unlikely to be satisfied with that explanation. It is not much to take to their shareholders.

If the transaction falls apart, the odds are very high that Harman will take the two big financial firms to court. And, it may be only the first case among several brought on by a tough credit environment where risk is no longer popular.

Douglas A. McIntyre is a partner at 247wallst.com.

Reports started circulating yesterday that PHH Corporation (NYSE: PHH), an outsource provider of mortgage and fleet management services, which is in the process of being acquired by General Electric Company (NYSE: GE) and The Blackstone Group ((NYSE:BX), is having trouble getting financing as the banks are balking. This is somewhat comical, since both GE and Blackstone have the resources to close this $1.8 billion deal if they really wanted to.

As a reminder, GE Capital, the division acquiring PHH, was one of the great growth stories of the 1980s and early 1990s as Gary Wendt, a Welch lieutenant, built the company up by buying assets that were often left for dead by investors. However, today, GE's finance division is going after businesses that are peaking, not bottoming out.

Another point worth mentioning is how difficult it is for GE to do deals that can have an impact on its performance. With a market capitalization of $411 billion, doing deals $1.8 billion in size is going to have little impact on the colossal company. Although a great company, GE is not a great stock. The PHH transaction shows how difficult it is for this huge company to grow by acquisition and the silliness of it saying it cannot close the transaction because of bank financing.