Samsung Electronics has turbocharged its ambitions in automotives and smart car technology with the announcement of an $8bn deal for US parts supplier Harman International Industries.
The acquisition, if completed, would represent the South Korean group’s biggest to date and heralds its entry into a market being pursued by the likes of Google, Apple and SoftBank.
Under the agreement, Samsung will acquire Harman for $112 a share in cash, a premium of 27.8 per cent to the target’s closing price on Friday. Harman shares were down 7 per cent this year ahead of the deal.
The US-listed company is a global leader in connected car technology and is known for its high-end multimedia, navigation and visual display systems. Group sales were $7bn during the 12 months to October and its order backlog as of June was $24bn, the company said.
Samsung set up a team last year to look at ways of penetrating the auto industry. The move to become a supplier of smart car technology was seen as a natural fit, given the company’s established capabilities in mobile devices, display technology and semiconductors.
“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 of Samsung Electronics.
More than 30m vehicles worldwide are equipped with Harman systems and the company has established key relationships with premium carmakers such as BMW and Mercedes-Benz.
The buyout of Harman — the largest foreign corporate takeover by a South Korean company — will “immediately give Samsung a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics,” said Samsung.
“Only 40 per cent of cars are currently connected with such technology. In 10 years, that will increase to 90 per cent. It is set to be a $100bn market,” said a person familiar with the company’s thinking.
Lee Se-chul, an analyst at NH investment Securities, said: “Samsung has shown its willingness to enter the vehicle components business by using its IT competitiveness. Since the completed car market doesn’t look bright overall, they seem to be targeting the car components market.”
Young Sohn, Samsung’s chief strategy officer, said: “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.”
“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.”
The company’s move into automotive electronics creates another front in its competition with old rivals Apple and Google, as well as taking on new tech disrupters such as SoftBank. Masayoshi Son, the founder of the Japanese telecoms group, earlier this year announced plans to team up with Honda to develop cars that can interact and communicate with drivers.
Apple has for years been working on self-driving vehicles and has approached British supercar maker McLaren about a potential acquisition. Google is also developing autonomous vehicles.
“Partnerships and scale are essential to winning over the long term in automotive as demand for robust connected car and autonomous driving solutions increases at a rapid pace,” said Dinesh Paliwal, chief executive officer of Harman.
The company would continue as a standalone Samsung subsidiary led by Mr Paliwal, the South Korean group said.
The buyout, which is still subject to approval from Harman shareholders, is a rare deal for the Korean conglomerate, which typically opts to develop technologies in-house.