Samsung has acquired Harman International Industries for US$8 Billion in cash. Harman gets about 65 percent of its sales from the automotive sector, Samsung said.
“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,” Vice Chairman Kwon Oh-hyun said in the statement. “Harman immediately establishes a strong foundation for Samsung to grow our automotive platform.”
The moves makes Samsung a major player in the world of automotive technology with brands such as BMW using Harman technology in all their vehicles.
As part of the deal, which is subject to approval by Harman shareholders, 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.
The move could see Harman technology popping up in Samsung phones, TVs and other AV and PC devices.
According to the Wall Street Journal the deal, Samsung’s biggest acquisition, reshapes the pecking order in the global automotive supply chain, reflecting a quickening pace of innovation and an increased role for companies with deep pockets and a keen understanding of mobile services.
Harman, an audio pioneer that dates back to 1953, has in recent years pushed aggressively into the automotive world under Chief Executive Dinesh Paliwal, and has secured billions in new business, including big contracts with General Motors and Fiat Chrysler. It has projected an order backlog of $24 billion, more than three times annual revenue, and about two-thirds of its current sales come from auto makers.
By becoming a direct supplier to the world’s biggest auto makers, Samsung will gain insight into the changing behavior of consumers as the lines blur between the auto and mobile industries. More directly, Samsung will have a window into developments in the automotive world, much like its smartphone components business gives it a peek into what Apple. and other handset makers are planning.
The deal offers a 28% premium over Harman’s Friday closing price of $87.65 a share, though it is below Harman’s all-time high of about $145 in April last year.
For Samsung, the Harman deal is nearly 10 times the size of the Suwon, South Korea-based company’s previous record for its largest acquisition, a two-part, $840 million purchase of AST Research in the mid-1990s. Samsung sustained heavy losses before ultimately giving up on Irvine, Calif.-based AST, once the world’s fifth-largest computer maker.
As a result, for nearly two decades, Samsung’s top management remained wary of making big acquisitions, preferring to build technology by pouring investment into research and development.
In recent months, however, Samsung has turned to deal-making as a way to instantly build up its capabilities in emerging technologies such as mobile payments, cloud-based services and artificial intelligence.
Samsung has dabbled in the automotive world before. In 1994, Chairman Lee Kun-hee launched Samsung Motors, with assistance from Nissan, before being forced to sell control of the company to Renault SA after the Asian financial crisis in 1998.