Samsung Electronics agrees to buy Harman for $8 bn in cash

Samsung Electronics is spending $8 billion to buy its way into a burgeoning market for automotive technology alongside Apple and Google as the smartphone business wanes.

The company is making its largest-ever overseas acquisition with an offer for Harman International Industries, angling to become the go-to supplier of everything from in-car entertainment to connected-auto services. It comes days after Samsung Group heir-apparent Jay Y Lee formally ascended to the board of the electronics firm, a move expected to shore up his influence over the family-run conglomerate’s prized asset.

The Harman acquisition will lift Samsung into the top ranks of auto technology suppliers and give it existing relationships with BMW, Volkswagen and General Motors. While Harman became a legendary name in high-end audio equipment, it’s pushed deeper into automotive supplies and now gets 65 per cent of sales from the sector. Samsung’s $112-a-share offer stood 28 per cent above Harman’s closing price of $87.65 in New York on Friday.

 

“This is the first deal cut after Jay Y joined the board and shows his management style is different from his father. He is an aggressive deal maker,” said Park Kang-ho, an analyst with Daishin Securities. “In the longer term, Samsung is thinking that life after smartphones is electric vehicles.” The Korean company joins a growing list of global technology companies moving into automobiles. The companies see cars as an industry that hasn’t yet been remade by software and online technologies.

But outside of Elon Musk’s Tesla Motors, the efforts haven’t yet reached customers. Google has for years been working on self-driving software but its systems haven’t yet reached the market. Apple went on a hiring spree to add staff to build its own car before recently re-calibrating the initiative to focus more on software, leading to job cuts. Uber Technologies joined the fray over the past year, hiring engineers and making acquisitions to build its own autonomous car technology.

Samsung itself has bought a stake in Chinese electric-car maker BYD and at one point considered an offer for sections of Fiat Chrysler Automobiles’s parts unit, a deal said to have broken down just weeks ago. With the Harman purchase, it’s taking a different approach that’s more in keeping with its history has a component maker. Rather than designing a car or building a self-driving system, Harman’s technology focuses on the growing number of services available as automobiles get connected to the internet — navigation, multimedia entertainment, security systems and analytics tools.

This transformation of the auto into a full-service mobile device adds up to a potential goldmine. Revenue from the data streams and connectivity components could become a 180 billion-euro ($200 billion) market by 2020, McKinsey & Co estimates.

“Samsung may have figured that it can’t become the biggest player in the car component business by itself, so it needs a big brand to get into the market,” said Greg Roh, an analyst at HMC Investment Securities. 

For Samsung, establishing a foothold in automotive technology offers the company a chance to shed its reliance on a smartphone market undergoing its worst downturn on record. The company is the world’s biggest supplier of displays and memory for mobile devices — replicating that dominance in autos will inject new life into the business. It’s now struggling to put the embarrassing death of the fire-prone Note 7 behind it, while searching for its next leg of growth.

Samsung said Harman is the market leader in connected car solutions, with more than 30 million vehicles equipped with its connected car and audio systems and telematics. Telematic devices allow in-vehicle access to specific services, including car parks and anti-theft security. The Stamford, Connecticut-based company has an order backlog for the auto market of $24 billion as of June 30.

“Harman has a scale and premium in the car-infotainment and audio businesses, so it would definitely help Samsung move faster. But it alone is not enough for Samsung to become the leader in this space,” said Roh.