Latin America. Samsung Electronics and Harman International Industries announced today that they have entered into a definitive agreement in which Samsung will acquire Harman for a total value of approximately $8 billion. This transaction will immediately give Samsung a significant market presence and rapid growth for interconnected technologies and particularly automotive electronics, which has been a strategic priority for Samsung and is expected to grow by more than $100 billion dollars by 2025.
Harman is the market leader in automotive connectivity solutions, with more than 30 million vehicles currently equipped with its audio and connectivity systems. Approximately 65% of Harman's reported sales are for $7.0 billion during the 12 months ended September 30, 2016, and are related to automotive and the order book for this market as of June 30, 2016 which was approximately $24 billion.
Harman's expertise in designing and integrating sophisticated in-vehicle technologies, as well as in its long-term relationships with most of the world's largest automakers, will create significant growth opportunities for the business by leveraging Samsung's expertise in connected mobility, semiconductors, user experience, exhibitions and global distribution channels. In addition, the combination of Harman's brands and audio capabilities and Samsung's expertise in consumer electronics will deliver greater benefits for customers and elevate user experiences across the entire portfolio of consumer products, as well as 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've been pursuing for some time," said Oh-Hyun Kwon, Vice President and Chief Executive Officer, Samsung Electronics. "As a premier automotive supplier with deep customer relationships, strong brands, leading technology and a recognized portfolio of best-in-class products, Harman immediately lays a solid foundation for Samsung to grow on our automotive platform."
"The cars of the future 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," added Young Sohn, President and Chief Strategy Officer of Samsung Electronics. "We see significant growth opportunities in the automotive technology market as demand for Samsung's electronic components and solutions continues to grow. Working together, we are confident that Harman can become a new type of premier supplier for equipment manufacturers by offering solutions for the entire connectivity ecosystem."
Dinesh Paliwal, President and CEO of Harman, stated, "This transaction will deliver significant and immediate value to our shareholders and open up new opportunities for our employees as part of a larger, diversified company. Today's announcement is a testament to what we have achieved and the value we have created for shareholders. Samsung is an ideal partner for Harman and this partnership will provide tremendous benefits to our automotive customers and consumers around the world. Samsung's combination of cutting-edge display, connectivity and processing solutions, with Harman's technology leadership and customer relationships will enable OEMs to offer new offerings to their customers. Partnerships and scale are essential to long-term gain in the automotive industry, as the demand for automotive connectivity systems and autonomous driving solutions increases at a rapid pace. This transaction will unite efforts by Harman and Samsung 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 together with Samsung to elevate the experiences of consumers around the world."
Customer benefits and opportunities for significant growth
Samsung expects the combination to deliver significant growth opportunities and benefits to customers by leveraging complementary technologies from Samsung and Harman, resulting in further increased market penetration.
• Automotive: Combines Harman's leadership in new automotive connectivity technologies, including its top positions in infotainment, cybersecurity, over-the-air upgrades and telematics, along with Samsung's expertise in connectivity technologies, including 5G, UX/UI, display technology and security solutions, will enhance automotive services businesses to drive higher sales and provide significant benefits as automakers are accelerating the adoption of connectivity in next-generation vehicles.
• Audio: Harman's leading brands and cutting-edge audio systems include JBL®, Harman Kardon®, Mark Levinson®, AKG®, Lexicon®, Infinity® and Revel®. The company also licenses the Bowers & Wilkins® and Bang & Olufsen® brands for automobiles. All these brands will greatly improve the competitiveness of Samsung's mobile, screen, virtual reality products to offer a completely differentiated and innovative audiovisual experience for customers.
• Professional: The merger will also expand the company's business-to-business platform through the ability to offer integrated professional audio and video solutions on a large scale such as in stadiums, concert halls and other entertainment centers such as The John F. Kennedy Center for The Performing Arts and The STAPLES Center – home of the GRAMMY Awards®.
• Connected services: Samsung will have access to Harman's 8,000 software designers and engineers specialized in the IoT market. This collaboration will deliver the next generation of cloud-based consumer and enterprise experiences, as well as services for the automotive market across the design, data and device trend.
Leadership and operational structure
Harman will operate as an independent subsidiary of Samsung, and will continue to be led by Dinesh Paliwal and the current management team. Samsung is looking for a long-term growth strategy in automotive electronics, and plans to retain Harman's workforce, headquarters and facilities, as well as all of its consumer and professional audio brands. Samsung believes the combination will increase professional development and growth opportunities for employees at both companies.
Samsung's automotive electronics business team, which was created in December 2015 to identify opportunities in the automotive sector, will work closely with Harman's management team to harness the full potential for growth.
Transaction Terms
The purchase price represents a 28% premium based on Harman's closing price on November 11, 2016 and a 37% premium to the 30-day weighted average price over Harman's calendar ending November 11, 2016. Samsung hopes to use cash to fund the transaction. The agreement has been unanimously approved by the boards of directors of both companies.
The transaction, which is subject to HARMAN shareholder approval, regulatory approvals and other customary conditions. It is expected to close in mid-2017.
