Samsung will not make cars itself, but the company sees automotive technology and the shift toward driverless vehicles as a promising growth area to sell more of its semiconductors and mobile services.
Harman’s Chief Executive Dinesh Paliwal acknowledge the competitive edge gained through linking up with Samsung.
“Partnerships and scale are essential to winning over the long term in [the] automotive industry,” he said.
The deal will see Samsung buy Harman for $112.00 per share in cash, a 28 percent premium on Harman’s current share price of $87.65.
“Samsung is using its huge cash pile to pull ahead of rivals in the auto technology market. But it remains to be seen whether it will be able to grow into a company that will be able to compete with the likes of Bosch and Continental,” said HDC Asset Management fund manager Park Jung-hoon.
Harman’s products, which provide telematics, infotainment, connected safety and security services, are used in over 30 million vehicles made by automakers such as Toyota Motor Corp (NYSE:TM), BMW (ETR:BMW) and Volkswagen (OTCMKTS:VLKAY)
“Upon closing, the transaction will immediately give Samsung a significant presence in the large and rapidly growing market for connected technologies, particularly automotive electronics, which has been a strategic priority for Samsung,” it said in a statement.
This isn’t the electronics company first try at the automotive industry. In 1994, the Chairman launched Samsung Motors, with assistance from Nissan. Samsung was then forced to sell control the company to Renault after the Asian financial crisis in 1998.
The Harman acquisition is subject to regulatory approvals and is expected to close in mid-2017.