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Electronics giant Samsung on Monday said it will buy U.S. car and audio systems supplier Harman International for $8 billion.
USA TODAY

South Korean electronics giant Samsung looks to very quickly get up to speed in the highly-competitive smart car business with its $8 billion acquisition of U.S. car and audio systems supplier Harman International

In an all-cash deal, Samsung will buy the Stamford, Conn.-headquartered firm for $112.00 per share. It is the biggest acquisition in Samsung’s history, the company said. Shares of Harman (HAR) surged 25% Monday to $109.96.

Automotive electronics is expected to grow to more than $100 billion by 2025, estimates Samsung, which has made the segment a strategic priority. But the electronics titan — hit in recent weeks by the recalls of its Galaxy Note 7 smartphone and some washing machines with tops that could detach — is playing catchup in smart cars to competitors such as Apple, which has a CarPlay feature available in a growing number of vehicles, and Google and its Android Auto in-car platform.

With Harman, expected to operate as a standalone subsidiary after the deal is completed, Samsung gets a tech company that has developed its own auto software platform for personal assistants, cybersecurity, navigation and infotainment, and has relationships with automakers ranging from Audi to Volkswagen.

“The primary motivator for Samsung’s purchase of Harman is to tap into its automotive business,” said Jack Wetherill, senior market analyst at Futuresource Consulting. “This is absolutely about the connected car. Harman are major players in this business and Samsung are not. They know they need to get into it to leverage their IoT (Internet of Things), their smart home and smartphone businesses to effectively spread, develop and maximize their revenues and potential.”

The deal, which is subject to approval by Harman shareholders and regulators, is expected to be completed in mid-2017.

“We see substantial long-term growth opportunities in the auto technology market as demand for Samsung’s specialized electronic components and solutions continues to grow,” added Young Sohn, Samsung Electronics president and chief strategy officer.

BMO Capital Markets analysts Tim Long and Ambrish Srivastava kept Samsung stock’s “market perform” rating in a note to investors Monday and said “the deal makes strategic sense.”

Samsung, they said, “is primarily interested in expanding its share of in-car technology and having access to” Harman’s relationships with auto makers.

As smart cars evolve into self-driving or autonomous cars — a movement led by Tesla but joined by many other companies including Google and Ford — Samsung will benefit doubly, as Harman’s involvement goes beyond auto technologies to in-car audio and entertainment. “They are missing a trick and they know this,” Wetherill said.

Harman has several well-known and respected audio brands including JBL, Mark Levinson and Infinity. “Samsung have aspired to this type of market but just simply haven’t had the background to get to that place,” he said.

The announcement comes after October’s massive recall of Samsung Galaxy Note 7s, which posed a fire risk related to the smartphone’s battery. Samsung has also announced a voluntary recall of 2.8 million top-loading washing machines because the top of the machine could detach and cause injury when running a high-speed cycle.