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Samsung/Harman Deal Faces Hurdle

Samsung announced its intention to acquire Harman for approximately $8 billion in November, but according to the Wall Street Journal, a shareholder plans to block the deal.

Stamford, CT (December 20, 2016)—Samsung announced its intention to acquire Harman for approximately $8 billion in November, but according to the Wall Street Journal, a shareholder plans to block the deal.

In November, the South Korean consumer electronics giant offered $112 a share for Stamford-based Harman in a bid to increase its presence in the connected car market, after establishing an Automotive Electronics Business Team one year ago. Samsung noted in its announcement that 65 percent of Harman’s $7 billion in reported sales during the 12 months ended September 30, 2016 were automotive-related. In addition to licensing brands such as Bowers & Wilkins and Bang & Olufsen for use in vehicles, Harman’s team of 8,000 software engineers and designers have developed advanced automotive systems that monitor a driver’s fatigue as well as intelligent solutions incorporating 3D navigation aids and personalized entertainment options.

Harman also controls audio brands including Harman Kardon, from which the company sprang in 1953, as well as AKG, BSS, Soundcraft, Lexicon, JBL Professional, Studer, dbx, DigiTech, Crown, Mark Levinson Audio Systems, Infinity and Revel. Harman’s professional solutions division, which includes video switching and control device manufacturer AMX and lighting company Martin in addition to its pro audio brands, contributed 14 percent to Harman’s bottom line over the last 12 months.

Samsung’s $112 per share cash offer represents a solid premium on the stock’s $88 trading price the day prior to the acquisition announcement. After the economy took a tumble in 2009, Harman’s stock dropped as low as $40, but recovered in 2013, peaking at $145 before being eroded by slow earnings. On the day of Samsung’s announcement, Harman’s share price rose to $110, where it remains.

But according to the WSJ’s report, Alexander Roepers, founder of Atlantic Investment Management, which holds a 2.3 percent share in Harman, believes that the company has been undervalued in Samsung’s offer, stating that the company is “worth a lot more.” He is also reported to be “dismayed” that Harman accepted the first offer that came along and has not sought other suitors. His investment firm plans to vote against the acquisition, he said.

A company with such a relatively small position in Harman is unlikely to scupper the deal entirely. And turns out that Samsung is not the sole bidder, according to industry sources. There was a regulatory filing by an unnamed company offering $115 a share in late 2015, but that rumored all-stock deal appears to have foundered. That may be enough to incite other Harman shareholders to try to force Samsung into improving its offer, however.

There is reportedly a no-shop clause in the agreement between Samsung and Harman. Consequently, it would take a cash-rich company to outbid Samsung, as it would also have to pay the Seoul-based conglomerate $240 million in penalties.

Samsung certainly recognizes the potential of the smart car market. In a November press release, Young Sohn, chief strategy officer of Samsung Electronics, stated, “The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices.”

The acquisition is expected to close in mid-2017.