Samsung announced a $8 billion all-cash deal on Monday to buy Harman International Industries - the largest overseas acquisition ever by a South Korean firm. The purchase of the U.S. auto-parts supplier is part of Samsung's efforts to find new areas of growth and reduce its reliance on a slowing smartphone market.
The company say the acquisition “will immediately give Samsung a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics, which has been a strategic priority for Samsung.”
The offer is 28 percent above Harman’s closing price of $87.65 in New York on Friday.
Samsung has described Harman as a “market leader in connected car solutions, with more than 30 million vehicles currently equipped with its connected car and audio system, including embedded infotainment, telematics, connected safety and security.”
Its embedded infotainment solutions include:
- 3D and augmented navigation;
- Multimedia support and smart apps for device integration;
- High speed connectivity;
- Intuitive and multi-modal user interfaces;
- Automotive cloud services.
Harman has experienced significant growth in recent years, signing big contracts with General Motors and Fiat Chrysler. It has projected an order backlog of $24 billion, more than three times its annual revenue, and about two-thirds of its current sales come from automakers.
Through this deal, Samsung will become a direct supplier to the world’s biggest automakers. But they are entering an extremely competitive market, with Apple, Google, Tesla and Uber all working on autonomous and connected car solutions. A recent report on Research and Markets forecast the global connected car market is anticipated to cross US$ 155 Billion mark by 2022.
Samsung has historically preferred to develop its own technology rather than make large acquisitions. However, this latest move has likely been brought on by the company’s struggles in the smartphone market. On 11 October, after numerous incidents, the world’s largest smartphone manufacturer was forced to permanently discontinue its Galaxy Note 7 and cease its production.
The recall had a major impact on Samsung’s business in 2016, with the company projecting its operating profits to fall by 33% in Q3. Credit Suisse analysts also estimated that the company would lose at least US$17 billion in revenue as a result.
The company sees connected technologies as a promising growth area to sell more of its semiconductors, display panels and mobile services. But after looking at how long it would take to build up those capabilities internally, the company began looking at other ways to enter the $55 billion market. Samsung began its expansion into this market by buying a stake in electric car maker BYD and had been rumoured to be in talks with Fiat Chrysler.
SUBJECT TO APPROVAL
The purchase, which is subject to approval by Harman shareholders, regulatory approvals and other customary closing conditions, is expected to close in mid-2017. As part of the deal, Harman will remain an independent subsidiary of the technology giant. Samsung will pay $112 a share in cash for Harman, which generated roughly $700 million in net profit on $7 billion of revenue last year.
Evercore is serving as financial adviser to Samsung, while JPMorgan and Lazard are advising Harman, according to the statement.
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