Samsung To Acquire Harman for $8 Billion, Aims To Give Professional-Solutions Biz a Shot in the Arm

Samsung Electronics has entered into a definitive agreement to acquire Harman International Industries for $8 billion. Although the deal (at $112.00 per share in cash) is focused primarily on growing the Samsung footprint in the connected-technologies market, particularly automotive electronics, Samsung believes “the combination will also expand the combined company’s business-to-business platform through its ability to deliver integrated, large-scale audio and visual professional solutions at stadiums, concert facilities, and other performance centers.”

Harman Primary Logo CMYK_CS6According to the New York Times, Harman’s professional-solutions business — which manufactures audio and lighting technology for stadiums, arenas, concert venues, and events — has weakened, and the company will work to bring the operations back to their previous strength.

Under the terms of the deal, Harman will operate as a standalone Samsung subsidiary and continue to be led by Chairman/President/CEO Dinesh Paliwal and its current management team. Pursuing a long-term growth strategy in automotive electronics, Samsung plans to retain Harman’s work force, headquarters, and facilities, as well as its consumer and professional audio brands. Samsung believes that the combination will increase career development and advancement opportunities for the employees of both companies.

All About the Automotive Market 
The automotive-electronics industry is expected to grow to more than $100 billion by 2025, according to Samsung analysis. Harman currently boasts 30 million vehicles with its connected car and audio systems, including embedded infotainment, telematics, connected safety, and security. Approximately 65% of Harman’s $7.0 billion of reported sales during the 12 months ended Sept. 30 are automotive-related, and its order backlog for this market at June 30 was approximately $24 billion.

samsung_logoHarman’s experience designing and integrating sophisticated in-vehicle technologies, as well as its long-term relationships with most of the world’s largest automakers, will create significant growth opportunities for the combined business by enabling it to leverage Samsung’s expertise in connected mobility, semiconductors, user experience, and displays and its global distribution channels. In addition, the combination of Harman’s brands and audio capabilities with Samsung’s expertise in consumer electronics will deliver enhanced customer benefits and elevate user experiences across Samsung’s portfolio of consumer and professional products and systems.

“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,” says Oh-Hyun Kwon, vice chairman/CEO, Samsung Electronics. “As a Tier 1 automotive supplier with deep customer relationships, strong brands, leading technology, and a recognized 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 fueled by technology leadership and an unmatched automotive-order pipeline reflects its commitment to innovation and customers.”

Adds Young Sohn, president/chief strategy officer, Samsung Electronics, “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 specialized electronic components and solutions continues to grow. Working together, we are confident that Harman can become a new kind of Tier 1 provider to the OEMs by delivering end-to-end solutions across the connected ecosystem.”

Paliwal says, “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. Today’s announcement is a testament to what we have achieved and the value that we have created for shareholders. Samsung is an ideal partner for Harman, and this transaction will provide tremendous benefits to our automotive customers and consumers around the world. Combining Samsung’s strengths in leading-edge displays, connectivity, and processing solutions with Harman’s technology leadership and long-standing 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. This transaction will bring Harman’s and Samsung’s complementary strengths together to accelerate innovation in this space. More broadly, this investment underscores the strength of Harman’s employees, as well as our success and leadership across our markets. We look forward to working with Samsung to elevate experiences for consumers worldwide.”

Combining Harman’s leadership in new connected-car technologies — including its top positions in infotainment, cyber security, over-the-air updates and telematics — with Samsung’s significant expertise and experience in connectivity technologies — 5G, UX/UI, display technology, security solutions — will enhance Harman’s automotive and connected-services businesses to drive greater sales and provide significant benefits as automakers speed the adoption of next-generation connected cars.

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

Beyond Automotive Electronics
According to Samsung’s announcement, the combination will also expand the combined company’s business-to-business platform through its ability to deliver integrated, large-scale audio and visual solutions at stadiums, concert facilities, and other performance centers, such as The Kennedy Center in Washington, DC, and STAPLES Center in Los Angeles, home of the GRAMMY Awards.

Harman’s leading brands and cutting-edge audio systems include JBL, Harman Kardon, Mark Levinson, AKG, Lexicon, Infinity, and Revel. The company also licenses Bowers & Wilkins and Bang & Olufsen brands for automotive. All these brands will greatly enhance the competitiveness of Samsung’s mobile, display, virtual-reality, and wearable products to deliver a fully differentiated audio and visual experience for customers.

Samsung will gain access to Harman’s 8,000 software designers and engineers who are unlocking the potential of the IoT market. This collaboration will deliver the next generation of cloud-based consumer and enterprise experiences, as well as end-to-end services for the automotive market through the convergence of design, data, and devices.

Odds and Ends of the Deal
The purchase price represents a 28% premium based on Harman’s closing stock price on Nov. 11 and a 37% premium based on Harman’s 30-calendar-day volume-weighted average price ended Nov. 11. Samsung expects to use cash on hand to fund the transaction. The agreement has been unanimously approved by the boards of directors of both companies.

Subject to approval by HARMAN shareholders, regulatory approvals, and other customary closing conditions, the transaction is expected to close in mid 2017.

Evercore is serving as financial advisor to Samsung, and Paul Hastings LLP is acting as legal counsel. J.P. Morgan and Lazard are serving as financial advisors to Harman, and Wachtell, Lipton, Rosen & Katz is legal counsel.

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