Samsung to buy Harman to further automotive innovation

A deal between US-based connected-car supplier Harman International Industries and South Korean tech giant Samsung Electronics Co. has been settled that the South Korean company will acquire Harman to further Samsung’s goal in entering the automotive industry.

Samsung is in talks to entering the automotive industry to manufacture self-driving cars with its own technology and Harman’s as well. This marks a strategic shift made by the Korean company.

Samsung is set to purchase Harman for $112.00 earnings per share, or an estimated valuation of $8 billion, which represents 28% of Harman’s closing price last Friday.

After the reports regarding the merger, Harman shares rose immediately to more than 25% during premarket trading on Monday.

Harman provides more than 30 million vehicles worldwide with its systems. The US company has established ties with carmakers as well such as BMW and Mercedez-Benz.

Around 65% of its revenues in the fiscal year came from supplying various types of chips, audio systems, and other parts of a vehicle.

Young Sohn, President and Chief Strategy Officer of Samsung Electronics, said “We have been studying the automotive market for some time. We conclude that organic growth will not get us where we want to go fast enough.” “Samsung will not get into the business of manufacturing cars,” he added.

With the Harman deal at hand, Samsung is considered to have entered car technology. This furthers the complicated relationship of the South Korean company with Apply Inc. and Alphabet Inc. The three tech giants are currently all planning to further their technology in the automotive industry, making them major players along with other traditional auto companies and tech upstarts like Tesla Motors Inc. and Uber Technologies Inc.

Samsung emphasizes that it is not their intention to manufacture cars but to provide carmakers that plan to offer vehicles with smartphone-like features. Samsung’s long-term plans include transforming vehicles with embedded electronics and to be a key supplier in the automotive industry.

Even though Harman is to be part of Samsung’s subsidiaries, the company will still be led by Chairman, President and CEO Dinesh Paliwal together with his existing management team, manufacturing same products in the same facilities, right after when the deal closes in mid-2017.

The deal made between the two companies came right after Samsung’s mobile phone subsidiary experience a crisis with its withdrawal of the fire-prone Galaxy Note 7 unit.

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