Samsung Electronics has decided to buy Harman International Industries, a U.S. automotive part supplier for $8 billion, in a bid to secure a next-generation growth engine.
The Korean firm held a board of directors’ meeting Monday to approve the all-cash deal, the biggest one in the history of the world’s largest smartphone maker. Korean companies have never before spent such a large amount of money to take over a foreign firm.
Samsung will pay $112 a share for Harman, which is around 28 percent higher than the latter’s closing price last week. The transaction, which is subject to approval by Harman shareholders and regulators, is expected to close halfway through next year.
With the high-profile acquisition, the company is seeking to shake up the landscape of the global automotive supplier market through providing total systems.
Samsung has already global competitiveness in semiconductors and displays and the purchase of Harman would add an edge to such sectors as infotainment, connected car system and telematics.
“Harman perfectly complements Samsung in terms of technologies, products and systems, and joining forces is a natural extension of the automotive strategy we have been pursuing for some time,” said Samsung Vice Chairman Kwon Oh-hyun.
“As a tier-one automotive supplier with deep customer relationships, strong brands, leading technology and a recognized portfolio of best-in-class products, Harman is a strong foundation for Samsung to grow our automotive platform.”
Established in 1956, Harman has gained fame as a manufacturer of premium audio products with such high-end brands as Harman Kardon, Mark Levinson, JBL and AKG.
Over the past decades, however, the Stamford-based company has made forays into the automotive components business after buying German enterprise Becker in 1995.
Currently, around two thirds of its revenue comes from the automobile segment as the company has inked big procurement contracts with players such as Fiat Chrysler Automobiles and General Motors.
Over its 2016 fiscal year that ended this June, Harman chalked up $6.9 billion in revenue for an operating profit of $680 million, up 12 percent and 24 percent from a year before, respectively.
In particular, its operating profit ratio topped 10 percent over the latest quarter between this July and September when it racked up $190 million in income on $1.76 billion turnover.
Its prospects are also bright because its order backlog is estimated to be some $24 billion, more than three times its annual sales.
Observers point out that the contract shows the style of Vice Chairman Lee Jae-yong, who currently leads Samsung instead of his bed-ridden father Chairman Lee Kun-hee.
The senior Lee focused more on organic growth rather than mergers and acquisitions, but since the junior Lee came to the fore in 2014, Samsung has turned to a series of deals gobbling up foreign firms with expertise in mobile payments and artificial intelligence.
The Harman contract is also notable since Samsung has experienced a fallout in the automotive industry. Under the stewardship of the senior Lee, the group waded into the crowded business in the mid 1990s but gave up after massive losses in the wake of the Asian financial crisis in the late 1990s.
Harman Chairman Dinesh Paliwal stated, “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,” he said.
“Samsung is an ideal partner for Harman and this transaction will provide tremendous benefits to our automotive customers and consumers around the world.”