Samsung to Buy Harman International in an $8 Billion Bet on Cars

The Fresh York Times

November 14, 2016

HONG KONG — Samsung Electronics is spending $8 billion to get inwards your car.

Samsung, the South Korean electronics giant — which already makes popular but recently problem-plagued smartphones — said on Monday that it had agreed to buy Harman International Industries, an American automotive technology company, in an ambitious shove into a entire different kind of mobile.

Harman is best known for making car audio systems under brand names popular with audiophiles such as Harman/Kardon and JBL. But Harman’s appeal to Samsung comes from what it calls its connected car business — an operation that supplies a car’s navigation services, its onboard entertainment systems and its connectivity to the rest of the world.

“The vehicle of tomorrow will be transformed by brainy technology and connectivity in the same way that ordinary feature phones have become sophisticated wise devices over the past decade,” Youthfull Sohn, the president and chief strategy officer of Samsung Electronics, said in a news release.

The deal marks the latest ambitious foray by an established name in the technology world into a fresh generation of clever objects sometimes collectively called the internet of things. Under this vision, everything from home security systems to refrigerators will be connected to the internet, gathering data and controllable at the touch of a smartphone icon.

Much of that concentrate has come down to cars. Last month, the American chip maker Qualcomm agreed to acquire NXP Semiconductors for $38.Five billion, which would give it a presence in the market for making a fresh generation of chips for clever cars.

With cars likely to get more screens and more computers, the purchase gives Samsung a stake in what could be an industrywide boom. It also could provide insight for the company’s varied components businesses. Samsung can learn firsthand from Harman what it needs to do to sell its screens, chips and memory to carmakers.

Other major technology names are also betting on mobile and wise gadgets. In July, SoftBank of Japan struck a deal to acquire ARM Holdings, a British chip designer with a concentrate on mobile devices, for $32 billion. Last year, Avago Technologies bought Broadcom, which provides chips for the Apple iPhone, for $37 billion.

It is far from certain whether those technologies will end up being the ones that power the clever gadgets of tomorrow. Apple and Google have voiced interest in developing cars, while traditional automotive suppliers have also looked to stir up the value chain.

Samsung’s $112-a-share suggest for Harman represents a twenty eight percent premium from where its shares traded on Friday, but that is still well below the harshly $145 that each Harman share was fetching early last year. Harman’s results from its professional solutions business — which makes sound and lighting for concerts and other events — have weakened. The company has said it will work to bring the operations back to their previous strength.

Samsung has largely benefited from the fresh mobile world, as growing request for smartphones bolstered sales of its displays and microchips. But the company has faced difficulties selling its own branded phones, including a drop in market share, as Apple captured more of the high end and a fresh generation of low-cost Chinese manufacturers enhanced pressure on the bottom.

The company regained some ground with the Galaxy seven line of curved phones. But last month, in an embarrassing turnabout, it discontinued its fresh, premium Galaxy Note seven after several caught fire. The stumble wiped $Two billion off its profit and cast a shadow over the Samsung brand name.

The deal for Harman is a infrequent one for Samsung, which keeps taut control of its supply chain — often wielding its suppliers outright — and has mostly eschewed big deals to pack in crevices in its portfolio.

Samsung said that it would also have access to Harman’s designers and engineers, which would permit for more collaboration. It did not give details on what sorts of services they would aim to build together.

It said that Dinesh Paliwal, Harman’s chairman and chief executive, would proceed to run the operation, and that it would keep the company’s facilities.

The deal is expected to close in mid-2017. Samsung was advised by Evercore, with Paul Hastings as legal counsel. JPMorgan and Lazard advised Harman, with Wachtell, Lipton, Rosen & Katz as legal counsel.

Paul Mozur contributed reporting from Hong Kong.

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