Seoul: Samsung Electronics said on Monday it would buy Harman International Industries for about $8 billion, marking a major push into auto electronics by the South Korean firm as well as the country's biggest overseas acquisition.
The electronics giant had previously shunned big acquisitions, and the deal underscores a strategic shift as the company tries to break into the high-barrier automotive industry where it has little track record.
"An M&A deal this big is a first for us. But it shows that under Jay Y. Lee, the company is changing and open to new ways to grow," a source familiar with the deal told Reuters, referring to Samsung Electronics' vice chairman.
The purchase of the Stamford, Connecticut-based maker of connected car and audio systems is part of Samsung's effort to find new areas of growth as its mainstay smartphone business - scarred by the disastrous withdrawal of the fire-prone Galaxy Note 7 - slows.
Automakers already include or are developing technologies to enhance safety and provide better smartphone connectivity and entertainment systems, creating an opening for tech companies to break into a market for software, services and components.
Samsung agreed to buy Harman for $112.00 per share in cash, a 28 percent premium to the U.S. firm's Friday close. Harman's shares were trading at $109.93 just after the opening on Monday.
"Samsung is using its huge cash pile to pull ahead of rivals in the auto technology market. But it remains to be seen whether Harman will be able to grow into a company that will be able to compete with the likes of Bosch and Continental," said HDC Asset Management fund manager Park Jung-hoon.
Harman's products, which provide infotainment, telematics, connected safety and security services, are used in more than 30 million vehicles made by automakers such as BMW, Toyota Motor Corp and Volkswagen .
Harman, the maker of JBL audio system, gets about two-thirds of its revenue from the automotive sector. Its automotive order backlog stood at $24 billion at the end of June, more than three times annual sales of $6.9 billion in fiscal 2016 ended June 30.
Samsung created an automotive electronics business team a year ago to identify growth opportunities. It invested $450 million in Chinese automaker and rechargeable battery maker BYD Co Ltd this year.
Separately, Samsung has held talks with Fiat Chrysler Automobiles over a potential sale or partnership for the latter's Magneti Marelli auto parts maker, sources have said. The current status of those talks is unclear.
Samsung will not get into the business of making cars, President Young Sohn said on a call with analysts.
The Harman acquisition, which is subject to regulatory approvals, is expected to close in mid-2017.
The deal was announced a day after media reports said Lee and other heads of South Korea's family-owned conglomerates were questioned by prosecutors investigating a political scandal engulfing South Korean President Park Geun-hye.
The electronics giant had previously shunned big acquisitions, and the deal underscores a strategic shift as the company tries to break into the high-barrier automotive industry where it has little track record.
"An M&A deal this big is a first for us. But it shows that under Jay Y. Lee, the company is changing and open to new ways to grow," a source familiar with the deal told Reuters, referring to Samsung Electronics' vice chairman.
The purchase of the Stamford, Connecticut-based maker of connected car and audio systems is part of Samsung's effort to find new areas of growth as its mainstay smartphone business - scarred by the disastrous withdrawal of the fire-prone Galaxy Note 7 - slows.
Automakers already include or are developing technologies to enhance safety and provide better smartphone connectivity and entertainment systems, creating an opening for tech companies to break into a market for software, services and components.
Samsung agreed to buy Harman for $112.00 per share in cash, a 28 percent premium to the U.S. firm's Friday close. Harman's shares were trading at $109.93 just after the opening on Monday.
"Samsung is using its huge cash pile to pull ahead of rivals in the auto technology market. But it remains to be seen whether Harman will be able to grow into a company that will be able to compete with the likes of Bosch and Continental," said HDC Asset Management fund manager Park Jung-hoon.
Harman's products, which provide infotainment, telematics, connected safety and security services, are used in more than 30 million vehicles made by automakers such as BMW, Toyota Motor Corp and Volkswagen .
Harman, the maker of JBL audio system, gets about two-thirds of its revenue from the automotive sector. Its automotive order backlog stood at $24 billion at the end of June, more than three times annual sales of $6.9 billion in fiscal 2016 ended June 30.
Samsung created an automotive electronics business team a year ago to identify growth opportunities. It invested $450 million in Chinese automaker and rechargeable battery maker BYD Co Ltd this year.
Separately, Samsung has held talks with Fiat Chrysler Automobiles over a potential sale or partnership for the latter's Magneti Marelli auto parts maker, sources have said. The current status of those talks is unclear.
Samsung will not get into the business of making cars, President Young Sohn said on a call with analysts.
The Harman acquisition, which is subject to regulatory approvals, is expected to close in mid-2017.
The deal was announced a day after media reports said Lee and other heads of South Korea's family-owned conglomerates were questioned by prosecutors investigating a political scandal engulfing South Korean President Park Geun-hye.
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