UPDATE 2-Gilat says $475 million deal terminated, seeks fee

(Adds comment from Gores in paragraphs 2, 8, 9; updates shares)

By Megan Davies

NEW YORK, Aug 29 (Reuters) - Israel-based Gilat Satellite Networks Ltd (GILT.O: Quote, Profile, Research, Stock Buzz) said on Friday it terminated a $475 million takeover deal struck with a consortium including private equity firm Gores Group LLC, as it accused the buyer of breaching the deal's agreement.

The consortium retaliated, saying it denied all allegations and that in an effort to complete the deal it had made a proposal that was "compelling and attractive in light of the decline in Gilat's operating performance."

It is the latest in a line of private equity transactions that have cratered after the credit crunch last year escalated the cost of financing and the economy hit a downturn.

The Gilat deal, struck in March, looked close to collapse on Monday when Gilat said buyers had breached the agreement by trying to substantially change the terms and were unwilling to do the deal at the price agreed in March, of $11.40 per share.

Gilat at the same time reported second-quarter earnings below analysts' expectations, hurt by its Colombian operations.

The company set a Thursday deadline of 5 p.m. ET (2100 GMT) for the consortium -- which includes Israel-based investment company Mivtach Shamir Holdings Ltd -- to complete the agreement. It warned it would consider legal action if they failed to do so.

Gilat said on Friday it had notified the consortium that it was terminating the deal because of an "intentional breach of the merger agreement and failure to close the merger transaction" by the time of the deadline.

But the consortium said Gilat's decision to terminate the deal was itself a "material breach" and said conditions to closing the deal hadn't been satisfied "as evidenced by Gilat's operating performance."

The consortium said it strongly denied "all allegations of breach asserted by Gilat."

Gilat said it was due a termination fee of $47.3 million, to be paid by the consortium by Sept. 10.

The Gilat deal included an unusually large break-up fee of 10 percent that the prospective buyers would pay under certain circumstances of the deal collapsing. Typically, termination fees are in the range of 2 to 3 percent.

Gilat's shares closed 5 percent lower at $7.55 on Nasdaq.

Leveraged buyout deals that collapsed since the global credit crunch set in last year include those for audio equipment maker Harman International Industries Inc (HAR.N: Quote, Profile, Research, Stock Buzz), equipment renter United Rentals Inc (URI.N: Quote, Profile, Research, Stock Buzz) and student lender Sallie Mae, formally known as SLM Corp (SLM.N: Quote, Profile, Research, Stock Buzz).

The $6.5 billion takeover of chemicals firm Huntsman Corp (HUN.N: Quote, Profile, Research, Stock Buzz) by Apollo Management is locked in litigation with a trial scheduled for Sept. 8. (Editing by Brian Moss, Richard Chang)