Big News for JBL/Harman: Good or Bad?

[Steve Schell]

You got it, TD. See any similarities?

[4345]

I think the private equity guys just wanted a cheaper price. The value of the company has dropped about 25% already. That is a lot more than the 250 million dollar penalty. I think Harman is still a good company that is highly prized by Asian consumers. With so many Chinese consumers becoming more wealthy, I think Harman is a great stock to own. I might not buy on Monday, but soon if it drops much more.

I am a little concerned about the fancy dinner party photos and the lack of selling all their product line in the U.S. It seems like the folks at JBL don't like to make money. The shareholders might not be too happy with that.

[Ian Mackenzie]

Oh my god...take that down ......LOL

[Audiobeer]

I'd love to take the money and run for a nice multimillion dollar retirement in my still youngish 50's. Only problem is, I can't even afford to retire in a van down by the river.

Hell everyday I get up and go to work "The Van Down by the river" looks beter and better.

[brutal]

Dunno, I'm not a financial geek by a long stretch, FDC just happens to be one of my IT clients. :-)



For the latest news from First Data Corporation titled:
First Data Announces Completion of Acquisition by KKR
Please visit:
http://ir.firstdatacorp.com/releaseD...leaseID=265610

[scott fitlin]

To me, its a bad sign. It is in line with everything going on at the moment. The credit crisis, the mortgage market going down the tubes with all those creative mortgages.

I honestly see this country headed into a recession, a deep one at that.

Not that I wanted to see JBL sold to a private equities firm, but how can a deal like this falling apart be good?

[Titanium Dome]

To me, its a bad sign. It is in line with everything going on at the moment. The credit crisis, the mortgage market going down the tubes with all those creative mortgages.

I honestly see this country headed into a recession, a deep one at that.

Not that I wanted to see JBL sold to a private equities firm, but how can a deal like this falling apart be good?

Scott

I have to say the current mortgage crisis has been good to me. I resisted the urge to jump on the bandwagon when interest was low, credit was easy, and prices were spiking. I keenly felt as though I were being left behind, and despite years of saving, every month I fell further away from home ownership.

Now, all of a sudden, hard working, long term guys like me have a chance to get a home. I have good credit, 20% down, falling interest rates, and declining prices. I think there are lots of people like me who will eventually bring sanity back to the market.

While I feel sorry for all those people who did stupid things in real estate, it's a lesson long overdue for many of them. They need to get out from under the illusion that everything comes easy and that they deserve a high standard of living without paying any dues.

Here's the lesson: work hard, curb spending, and save up for your dreams.

I think some of the venture capitalists and equity firms need a reminder of this lesson, too. In fact, they need a sharp, hard crack on the ass. Sometimes you work hard and get very little return; sometimes you lose money instead of make it; sometimes credit dries up and your funding partners turn a deaf ear; there's risk involved. I think these guys just got a wake up call, and I think Harman International will be just fine without them. In fact, Harman might just come out ahead if Sydney plays this right.

[4313B]

Bingo!

Nice post Dome.

[scott fitlin]

Scott

I have to say the current mortgage crisis has been good to me. I resisted the urge to jump on the bandwagon when interest was low, credit was easy, and prices were spiking. I keenly felt as though I were being left behind, and despite years of saving, every month I fell further away from home ownership.

Now, all of a sudden, hard working, long term guys like me have a chance to get a home. I have good credit, 20% down, falling interest rates, and declining prices. I think there are lots of people like me who will eventually bring sanity back to the market.

While I feel sorry for all those people who did stupid things in real estate, it's a lesson long overdue for many of them. They need to get out from under the illusion that everything comes easy and that they deserve a high standard of living without paying any dues.

Here's the lesson: work hard, curb spending, and save up for your dreams.

I think some of the venture capitalists and equity firms need a reminder of this lesson, too. In fact, they need a sharp, hard crack on the ass. Sometimes you work hard and get little return; sometimes you lose money instead of make it; sometimes credit dries up and your funding partners turn a deaf ear; there's risk involved. I think these guys just got a wake up call, and I think Harman International will be just fine without them. In fact, Harman might just come out ahead if Sydney plays this right.

You know, I agree with you. With the mortgage market hitting bottom, and all the stupid things people did, it does give smart, hard working people like yourself, myself, etc, the chance to buy homes at good prices, and decent low interest on your mortgages. BUT, still, whats happening will have serious ramifications on the financial world, and this country.

I also feel Harman will come out of this just fine, and Im glad JBL isnt being sold off to some equities firm, that isnt the problem. The problem is I see us headed for a financial crisis, maybe even recession.

But, yes, falling prices, and low interest will be good to those who werent frivolous in the first place.

[Don McRitchie]

I don't know any of the details of the proposed deal, but from the surface, I would say that its disruption looks like a good thing.

As I understood it, the KKR/GS deal was a leveraged buyout. The $8 billion purchase price would be borrowed, and rather than the new owners (KKR/GS) being responsible for the debt, Harman would corporately assume the debt. Therefore, under the new owners, Harman would have started business with a huge debt load to service and an expectation for greatly increased profits. This is a massive contradiction. Harman would be in a significantly weaker financial position with demands to raise profitability to levels never before achieved in its corporate history.

This situation would have to lead to a massive cost cutting exercise, with the most like scenario being a complete divestiture of manufacturing to Chinese contractors. In the worst case, the company could be downsized to strictly a marketing and product definition operation with design, engineering, and manufacturing all out sourced and off shore. This would free up expenditures in both personnel and and facilities with the potential closure of Northridge and its obvious significant costs. Further, there would be strong impetus to sell off divisions of the company piece meal with the hopes that the parts are worth more than the sum. Elements of this occurred with Altec Lansing and look where they are now.

If Harman has to be acquired, it would be a better situation if it was by a larger company in the same industry. Even Sony, with their poor track record with acquisitions, would be a better solution than that of a hedge fund pursuing a leveraged buyout.

For the time being, I'm guessing that this deal is dead. I don't think that price is really the issue, even though it would appear that KKR/GS was paying an inflated premium for Harman. The credit crunch means that the market liquidity necessary to finance leveraged buyouts (pretty much the air that hedge funds breath) has become near non existent.

Don

[boputnam]

...(they) would ... sell off divisions of the company piece meal with the hopes that the parts are worth more than the sum.

And, parse the accumulated debt to the business segments at their sale(s). So, each of these pieces on sale need to maintain their prospective value for the entire deal to succeed (from KKR's perspective).

The credit (crisis) means that the market liquidity necessary to finance leveraged buyouts (pretty much the air that hedge funds breath) has become near non existent.

, but the malaise is not restricted to hedge funds.

In taking the business private, KKR would have restructured (read: gutted) the business as we know it - there would no longer be (public) equity holders to report to (or appease), and the creditors would already be on-board with KKR's plan beforehand. KKR would then have fashioned it up for re-listing in an IPO somewhere down the road, hoping for a multiple of their acquisition valuation.

The current markets have intractably tight liquidity - there is money around, but no-one wants to part with it until they can know for certain that the calls on their own obligations can be met (i.e., that they themselves are not liquidity constrained). This may persist for sometime until all pieces of investment portfolios can be properly valued - valued in the market by willing sellers and willing buyers, not by "mark to market" methods.

Now, neither hedge funds nor public investors are aggressively chasing new investments. A weakening dollar is a material change to this landscape - the w/w currency wobbles suggests goods made overseas may not have the cost advantage they have long held. Valueing business right now is more difficult than usual. KKR is smart - there is no urgency to do this deal.

While bashing KKR can be fun, it may be that the result of their initiative might make sense. That is naively wishful thinking on my part, but if they simplified the product lines, reducing self competition and strengthening the JBL brand, selling off non-performing, non-core segments, it could be better. Regrettably, this is not typically the outcome...

[boputnam]

Clearly, KKR had a whole number of deals logger-jammed. Some, are eeking through...

-----------------------------------------------------------------------
KKR Banks Selling $10 Billion of First Data Loans
2007-09-27 11:05 (New York)

By Cecile Gutscher and Bryan Keogh

Sept. 27 (Bloomberg) -- Banks financing Kohlberg Kravis Roberts & Co.'s acquisition of First Data Corp. plan to sell as much as $10 billion of loans today, double the amount targeted last week, said two people with direct knowledge of the deal.

Six underwriters led by Credit Suisse Group, Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. will issue as much as $8 billion of the debt at a discount of 4 percent of face value. A further $2 billion will be sold at a 3 percent cut, said the people, who declined to be identified because details of the sale are private.

``It's a significant event on the road back to normality,'' said John Pattullo, who manages about $2 billion of mainly high- yield bonds and loans at Henderson Global Investors in London. ``It shows that investors at least will accept a market clearing price and that wasn't the case a month ago.''

Buyers are starting to return to high-yield debt after the record foreclosures on subprime mortgages prompted investors to shun all but the safest debt during July and August. First Data's banks had reduced the loan sale to $5 billion from $14 billion earlier this month because of a lack of demand.

Underwriters sold more than $7 billion of leveraged loans in the U.S. in the last two weeks, reducing their backlog of postponed debt offerings to about $370 billion, according to Bank of America Corp.

`Less Panic'

``It's a virtuous cycle,'' said Raja Visweswaran, Bank of America's head of European credit strategy in London. ``The more deals that clear the market, the more confidence from investors and less panic from deal arrangers.''

Leveraged buyouts, which were at a record $613 billion in the first half of the year, slowed to $167.4 billion since then because banks stopped financing new deals.

Total sales of U.S. leveraged loans declined to $12 billion this month from more than $50 billion in June, according to Standard & Poor's. The LCDX index, a gauge of confidence in the U.S. leveraged loan market, has risen 8.2 percent to 97.4 from a low of 90 on July 30, according to Goldman Sachs Group Inc. The benchmark, which increases as investor confidence improves, rose 0.05 today.

First Data's loans pay annual interest of 2.75 percentage points over the London interbank offered rate, unchanged since the deal was announced in July. With a 4 percent price discount, that raises the yield to about 4.3 percentage points more than Libor, according to data compiled by Bloomberg.
HSBC Holdings Plc, one of the First Data underwriters, will keep about $2 billion of the loans until the end of the year, with an option to sell at 98 cents on the dollar or more, the Financial Times reported today, without saying how it got the information. HSBC spokesman Donal McCarthy in New York declined to comment.

Alliance Boots

Bankers for the Greenwood Village, Colorado-based credit- card processor will sell between $9 billion and $10 billion of the loans, the people said. They still need to find buyers for a further $9 billion of planned bonds.

New York-based KKR, run by Henry Kravis and George Roberts, agreed to buy First Data in April, before the subprime mortgage rout caused the collapse of collateralized debt obligations that buy leveraged loans.

Another KKR deal, the 9 billion-pound ($18 billion) financing for the acquisition of U.K. pharmacy chain Alliance Boots, has languished on underwriters' books since July.

Banks underwriting the financing for LBOs commit to raise the money and earn fees to compensate for the risk of having to take on any debt they can't sell to a wider group of investors. They have to mark down the value of the debt and assume a loss if the price of high-yield loans falls below 100 percent.

[Ducatista47]

This may persist for sometime until all pieces of investment portfolios can be properly valued - valued in the market by willing sellers and willing buyers, not by "mark to market" methods.

This would not be popular with most investors. If one were to value stocks on the originally intended criteria instead of the current speculative instrument model (owning part of a corporation and earning dividends on your investment versus buying and selling that ownership), the Dow, for instance, would be at well less than 3000 by my wild guess. There are not many Warren Buffetts and plenty of every other type.

While bashing KKR can be fun, it may be that the result of their initiative might make sense. That is naively wishful thinking on my part, but if they simplified the product lines, reducing self competition and strengthening the JBL brand, selling off non-performing, non-core segments, it could be better. Regrettably, this is not typically the outcome...

The way you put it, Harman sounds like General Motors.

Great comments, Bo, as usual.

Clark

[boputnam]

The way you put it, Harman sounds like General Motors.

Ha! You're right, Clark - even more like GE!! GE comprises a host of really interesting businesses that alone could garner high valuations, but they are buried in a mega corporation where their contribution is diluted. I'd love to invest singly in their turbine business or some of their alternative energy or water segments, but unless they unbundle, there is no point. :dont-know

[Ducatista47]

Funny thing, Bo. GM divested its Electro Motive Division - EMD, the locomotive unit - and now it has to fend for itself. Guess who is kicking the crud out of it. The resurgent General Electric locomotive division, which used to tumble in EMD's wake.

Lord, I miss the days when most oil burning locos came from the LaGrange, Illinois plant. The same days when JBL was a powerhouse in the home market. I'm getting old.

Clark