'Samsung's Harman acquisition is win-win'

By Jhoo Dong-chan, Lee Min-hyung

Will Samsung Electronics bottom out from the Galaxy Note 7 shock through its takeover of U.S. auto parts supplier giant Harman?

The $8 billion (9.36 trillion won) transaction has brought an upheaval in the automotive and IT industries here and abroad, as this is the largest-ever all-cash deal by the world’s largest smartphone manufacturer.

The move came as Samsung aims to find new revenue areas at a time when the handset market is entering an inflection point. In recent years, global ICT giants ― such as Google and Samsung ― have pushed for an aggressive expansion strategy into the self-driving and smart vehicle industry as their next growth engines.

Following the Monday announcement, industry observers unanimously identified the deal as a win-win outcome for both Samsung and Harman.

According to London-based information and analysis provider IHS Markit, Tuesday, the combination of Samsung and Harman in terms of benefits for each in automotive technology is a “no brainer.”

“For Samsung Electronics, Harman’s tier one supplier status gives Samsung immediate improved access to the market. Harman has established relationships and partnerships with automakers, including BMW and Volkswagen,” it said.

“That foothold could eventually act as a springboard for Samsung Electronics into other spaces in automotive as well ― the company has tried make inroads with its battery cells in the automotive space, for instance ― helping with the strategic long-term upside of this acquisition.”

Rosy expectations prevail among industry insiders as well.

“This is the largest M&A deal under the leadership of Samsung Electronics Vice Chairman Lee Jae-yong,” an industry observer said under condition of anonymity.

“Their cooperation will bring enormous synergy in their future businesses in the automotive market. It suggests Samsung’s direction and future growth engine in the long term.”

Under the deal, Samsung will pay $112 a share for Harman, which is a 28 percent premium over the latter’s closing price Friday. The transaction is expected to close halfway through next year.

Harman CEO Dinesh Paliwal immediately welcomed the agreement between the two companies, saying that linking up with Samsung Electronics would give the two companies an edge in a competitive field.

“Partnerships and scale are essential to winning over the long term in the automotive industry,” he was quoted as saying.

“We will absolutely gain the synergy of procurement from this deal. Having our competencies, combined with the scale of Samsung’s procurement of technology components and sensors, will also allow us to provide proof of concept to clients faster for seamless integration of new autonomous and connected car features.”

The acquisition is also expected to give fresh momentum for Samsung which has suffered from the aftermath of exploding Galaxy Note 7 batteries.

Founded as an audio pioneer in 1953, Harman has designed and engineered auto parts for automakers, consumers and enterprises worldwide. It has been supplying parts related to connected car technologies since the late 2000s.

Recently under Paliwal’s leadership, Harman has actively made inroads into the future car industry. It clinched a big contract with General Motors and another with Fiat Chrysler Automobiles. The U.S-based auto supplier has reportedly an order backlog of $24 billion, more than triple its annual revenue, and about two-thirds of its current sales come from carmakers.

Harman has the largest market share of the global premium infotainment and car audio industry. It also has a 10 percent market share in the global telematics industry, the second-largest in that market.

The autonomous and connected car application industry is one the fastest-growing markets with an average growth rate of 13 percent in the past five years, and is expected to reach $186.4 billion globally by 2025. It was a $54.2 billion market last year.