Harman/Levinson/Proceed/Lexicon/Revel/ Deal Busted

Makes me wonder what was the "material adverse development"? Could it have been Tweeter's demise? or, did business suddenly fall off a cliff? or, maybe they lost a big contract with an automaker?

Something "fell off a cliff" with Q4 earnings which were 25% below expectations. There is a slight delay in the launch of a new line of Mercedes (with Harman stereos going in them), but given that Hyundai, Peugeot, and others are lining up to get Harman integrated systems in their top-of-range models it should not be a real problem. And given that there is a $225mil termination fee that the would-be-buyers would have to pay to walk away, I would expect the due diligence done would have been good enough to get to the "questions of Harman's financial health" (especially given no debt and $500mil free cash flow per year and OEM mfg capacity booked out for a year-plus). It'll be interesting to see what it is...

The MAC was the inability of the buyout firms involved to obtain appropriate financing due to the recent structural changes in the credit markets.

Private Equity has kind of worked like flipping houses in an up market....many players with no intention of remining as owners for any significant length of time...i.e. many speculators that should not be in the market and who are just looking for a quick gain. The "adverse development" is that, in future, it looks less and less likely if there will be buyers left to flip stuff to (at ever more inlfated and ridiculous prices....)

It's the credit crunch. KKR didn't like the terms the bank was offering to finance the debt. In addition, KKR doesn't want to be holding a luxury manufacturer in a slowing/tightening economy.