Samsung Electronics agreed to buy Harman International Industries for about US$8bn (R115bn) to expand in connected automobiles and reduce its reliance on a slowing smartphone market.
The cash offer values Harman shares at $112 apiece, Suwon, Korea-based Samsung said in a statement on Monday. The offer is 28% above Harman’s closing price of $87,65 in New York on Friday.
Samsung has been expanding into the automotive sector, buying a stake in electric car maker BYD and considering an offer for sections of Fiat Chrysler’s parts unit, a deal said to have broken down just weeks ago.
While Harman became a legendary name in high-end audio equipment, the company has pushed deeper into automotive supplies and now gets 65% of sales from the sector.
“The deal size shows how desperate Samsung is for a new growth driver,” said Greg Roh, an analyst at HMC Investment Securities. “Samsung may have figured that it can’t become a leader in the car component business by itself, so it needs a big brand to get into the market.”
Shares of Samsung fell 2,8% at the close in Seoul before the announcement was made. Samsung said this is the largest ever overseas deal by a single Korean company.
Samsung said Harman is the market leader in connected car solutions, with more than 30m vehicles equipped with its connected car and audio systems and telematics. Telematic devices allow in-vehicle access to specific services, including insurance, car parks and anti-theft security. The Stamford, Connecticut-based company has an order backlog for the auto market of $24bn as of 30 June.
The company’s interest in Fiat’s Magneti Marelli coincided with its Galaxy Note7 smartphone debacle, which resulted in a global recall, the killing-off of the model and is expected to cost the company more than $6bn.
“Harman perfectly complements Samsung in terms of technologies, products and solutions, and joining forces is a natural extension of the automotive strategy we have been pursuing for some time,” Samsung vice chairman Kwon Oh-hyun said. “Harman immediately establishes a strong foundation for Samsung to grow our automotive platform.”
Evercore is serving as financial adviser to Samsung, while JPMorgan and Lazard are advising Harman, according to the statement.
The audio company can trace its roots back to the 1950s, when Sidney Harman teamed up with Bernard Kardon to make high-fidelity machines. The company would later acquire brands including JBL and Infinity, among other audio equipment makers, and become a leader in high-end car stereo systems. It also owns the Bang & Olufsen brand for cars after acquiring the business last year. — (c) 2016 Bloomberg LP
