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Samsung buying Harman for $8bn

William Payne
November 24, 2016
 
South Korean electronics firm Samsung is buying connected car technology supplier Harman for $8bn. The deal marks a major move by Samsung into the vehicle electronics and infrastructure market, and is the largest ever overseas take-over undertaken by the company.
 
Connecticut-based Harman is a market leader in connected car technologies. More than 30 million vehicles use its connected car and audio equipment. Its products include embedded infotainment, telematics, and connected safety and security.
 
Samsung says the deal will open the door for the company in transport and industrial IoT, with Samsung gaining access to Harman’s 8000 software designers and engineers developing IoT technologies. Samsung says collaboration between the two companies’ R&D teams will help produce next generation cloud-based consumer and enterprise technologies and end-to-end services for the automotive market through the convergence of design, data and devices.
 
When the deal is closed, Harman will operate as a standalone Samsung subsidiary, and continue to be led by current chief executive and chairman Dinesh Paliwal and Harman’s current management team.
 
“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,” said Oh-Hyun Kwon, chief executive officer of Samsung Electronics. “As a tier-one automotive supplier with deep customer relationships, strong brands, leading technology and a recognised portfolio of best-in-class products, Harman immediately establishes a strong foundation for Samsung to grow our automotive platform. Dinesh Paliwal is a proven global leader and, in our extensive discussions, we have developed deep respect for him, his strong senior leadership team and Harman’s talented employees. Harman’s sustained track record of rapid growth fuelled by technology leadership and an unmatched automotive order pipeline reflects its commitment to innovation and customers.”
 
Samsung says it is pursuing a long-term growth strategy in automotive electronics, and plans to retain Harman’s work force, headquarters and facilities, as well as all its consumer and professional audio brands. Samsung believes the combination will increase career development and advancement opportunities for the employees of both companies.
 
About 65 per cent of Harman’s $7bn of reported sales during the 12 months ended September 2016 are automotive  related, and its order backlog for this market in June 2016 was approximately $24bn.
 
The purchase price represents a premium of 28 per cent based on Harman’s closing stock price this month and a 37 per cent premium to Harman’s 30-calendar day volume weighted average price. Samsung expects to use cash on hand to fund the transaction. The agreement has been unanimously approved by the boards of directors of both companies.
 
In a statement, Samsung said the combination of Harman’s brands and audio capabilities and Samsung’s expertise in consumer electronics would deliver enhanced customer benefits and elevate user experiences across Samsung’s portfolio of consumer and professional products and systems.
 
Samsung says it expects combining the two companies will lead to significant growth across a number of different vertical markets, including automotive, audio, professional and enterprise, and connected services.
 
In automotive, Samsung believes combining Harman’s connected car technologies, including its market positions in infotainment, cyber security, over-the-air updates and telematics, with Samsung’s connectivity technologies, including 5G, UX and UI, display technology and security, will enhance Harman’s automotive and connected services businesses to drive greater sales and provide significant benefits as automakers speed the adoption of next-generation connected cars.
 
“The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices over the past decade,” said Young Sohn, president of Samsung Electronics. “We see substantial long-term growth opportunities in the auto technology market as demand for Samsung’s specialised electronic components and solutions continues to grow. Working together, we are confident that Harman can become a new kind of tier-one provider to the OEMs by delivering end-to-end solutions across the connected ecosystem.”
 
In audio, Harman's brands and audio systems include JBL, Harman Kardon, Mark Levinson, AKG, Lexicon, Infinity and Revel. These should enhance the competitiveness of Samsung’s mobile, display, virtual reality and wearable products.
 
In the professional audio and entertainment market, Samsung says the Harman acquisition will expand the combined company’s business-to-business platform through its ability to deliver integrated, large-scale audio and visual professional offerings at stadiums, concert facilities and other performance centres.
 
“This compelling all-cash transaction will deliver significant and immediate value to our shareholders and provide new opportunities for our employees as part of a larger, more diversified company,” said Paliwal. “Today’s announcement is a testament to what we have achieved and the value that we have created for shareholders. Samsung is an ideal partner for Harman and this transaction will provide tremendous benefits to our automotive customers and consumers around the world. Combining Samsung’s strengths in leading-edge displays, connectivity and processing with Harman’s technology leadership and long-standing customer relationships will enable OEMs to provide new offerings for their customers. Partnerships and scale are essential to winning over the long term in automotive as demand for robust connected car and autonomous driving increases at a rapid pace. This transaction will bring Harman and Samsung’s complementary strengths together to accelerate innovation in this space. More broadly, this investment underscores the strength of Harman’s employees, as well as our success and leadership across our markets. We look forward to working together with Samsung to elevate experiences for consumers worldwide.”