Monday, November 14, 2016
Samsung Electronics announced an $8 billion cash deal on Monday to buy Harman International, marking a major push into the auto electronics market and the biggest overseas acquisition ever by a South Korean firm.
The electronics giant previously shunned big acquisitions, and the latest deal underscores a strategic shift as the company tries to break into the high-barrier automotive industry where it has little track record.
“An M&A deal this big is a first for us,” a source familiar with the deal told Reuters. “But it shows that under [Vice Chairman] Jay Y. Lee, the company is changing and open to new ways to grow.”
The purchase of the Stamford, Conn.-based maker of connected car and audio systems is part of Samsung’s efforts to find new areas of growth as its mainstay smartphone business — scarred by the disastrous withdrawal of the fire-prone Galaxy Note 7 — slows.
Automakers already include or are developing technologies to enhance safety and provide better smartphone connectivity and entertainment systems, creating an opening for tech companies to break into a market for software, services and components.
Samsung agreed to acquire Harman for $112.00 per share, a 28 percent premium to the US firm’s closing price on Friday.
“Samsung is using its huge cash pile to pull ahead of rivals in the auto technology market,” said HDC Asset Management fund manager Park Jung-hoon. “But it remains to be seen whether Harman will be able to grow into a company that will be able to compete with the likes of Bosch and Continental.”
Harman’s products, which provide infotainment, telematics, connected safety and security services, are used in more than 30 million vehicles made by automakers such as BMW, Toyota and Volkswagen, according to its website.
Harman, the maker of JBL audio system, earns around two thirds of its revenue from the automotive-related segment, and its automotive order backlog as of end-June stood at $24 billion, more than three times annual sales of $6.9 billion.
Samsung created an automotive electronics business team a year ago to identify growth opportunities in the sector. This year it invested $450 million in Chinese automaker and rechargeable batteries firm BYD Co.
Separately, Samsung has held talks with Fiat Chrysler Automobiles over a potential sale or partnership for the latter’s Magneti Marelli auto parts maker, sources have said. The current status of those talks is unclear.
The Harman acquisition is subject to regulatory approvals and is expected to close in mid-2017.
The deal was announced a day after media reports said Lee and several other heads of South Korea’s family-owned conglomerates were questioned by prosecutors investigating a political scandal engulfing South Korean President Park Geun-hye.