Samsung to buy Harman International for $8bn

January 2017 | DEALFRONT | MERGERS & ACQUISITIONS

Financier Worldwide Magazine

In a transaction designed to accelerate growth in automotive and connected technologies, Samsung Electronics announced its intention to acquire Harman International Industries, Incorporated.

Under the definitive agreement, South Korean multinational electronics company Samsung will buy American firm Harman for $112 per share in cash for a total equity value of approximately $8bn.

Upon closing, the transaction will immediately give Samsung a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics, which has been a strategic priority for Samsung, and is expected to grow to more than $100bn by 2025.

The market leader in connected car solutions, Harman has more than 30 million vehicles currently equipped with its connected car and audio systems, including embedded infotainment, telematics, connected safety and security.

Furthermore, approximately 65 percent of Harman’s $7bn of reported sales during the 12 month period ended 30 September was automotive-related and its order backlog for this market at 30 June 2016 was approximately $24bn.

Samsung has stated that it expects the acquisition of Harman to deliver significant growth opportunities and benefits to customers by leveraging Samsung’s and Harman’s complementary technologies, resulting in increased market penetration across important end markets.

“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 Dinesh Paliwal, chairman, president and CEO of Harman. “Combining Samsung’s strengths in leading-edge displays, connectivity and processing solutions with Harman’s technology leadership and longstanding 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 solutions increases at a rapid pace.”

Samsung’s Automotive Electronics Business Team, which was established in December of 2015 to identify opportunities for Samsung in the automotive sector, will work closely with the Harman management team to realise the full growth potential of the combination.

Upon closing, Harman will operate as a standalone Samsung subsidiary and continue to be led by Mr Paliwal and Harman’s current management team. As part of its long-term growth strategy in automotive electronics, Samsung plans to retain Harman’s workforce, headquarters and facilities, as well as all of its consumer and professional audio brands. Samsung believes the combination will increase career development and advancement opportunities for the employees of both companies.

“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, vice chairman and chief executive of Samsung Electronics. “As a Tier 1 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.”

Serving as financial adviser to Samsung is Evercore, while Paul Hastings LLP is acting as legal counsel. For Harman, J.P. Morgan and Lazard are serving as financial advisers and Wachtell, Lipton, Rosen & Katz is acting as legal counsel.

Expected to close in mid-2017, the Samsung/Harman transaction is subject to approval by Harman shareholders, regulatory approvals and other customary closing conditions.

“Samsung is an ideal partner for Harman and this transaction will provide tremendous benefits to our automotive customers and consumers around the world,” concluded Mr Paliwal.

Fraser Tennant