Is it too little for $8 billion? Samsung is asked to increase the purchase price of parts supplier Harman

According to foreign media reports, Samsung Electronics may have encountered a speed bump on the road to acquiring automotive technology. Samsung’s $8 billion acquisition of Harman International, a US auto parts supplier, faces opposition from investors.

Harman International

Harman investor and Atlantic Investment Management president Alexander Roepers said on Wednesday that the company plans to vote against the deal. As of the end of September this year, Atlantic Investment holds a 2.3% share of Harman.

Robles said that Harman’s corporate value is much higher than $8 billion. The Harman shares held by Atlantic Investment may not be enough to influence the vote, but other investors may also want to raise the purchase price to get more benefits.

Samsung’s acquisition of Harman is at a time when technology companies’ competition in the field of automotive technology is heating up. Qualcomm announced in October that it would acquire NXP Semiconductors for $39 billion, making it the largest semiconductor merger in history, vying for the automotive chip market. Pushing forward another month, Renesas Electronics agreed to acquire US chip maker Intersil for $3.2 billion to focus on the automotive chip market. Panasonic also plans to acquire the Austrian automotive lighting giant ZKW Group.

The regulatory documents disclosed this week show that there is indeed another company that has made an offer for Harman. In December 2015, an unnamed company proposed to acquire Harman in a full stock exchange. At that time, the offer to Harman was about $115 per share, slightly higher than Samsung's current offer. However, as the share price of the bidder declined, the two sides concluded the acquisition negotiations. Considering that the unnamed company only proposed to acquire Harman in full stock, it is unlikely to beat Samsung in the bidding because Samsung proposed a full cash transaction of $112 per share.

Harman's corporate value multiple trend

However, cash-rich tech giants such as Microsoft, Apple, and Google's parent company, Alphabet, have the strength to beat Samsung in the bidding, all of which are eager to exert their influence on the next generation of car design. Samsung's parts business is huge, and it may hope to create greater synergy through the integration of Harman, but can not ignore the bidding of these wealthy tech giants. Perhaps more likely to compete with Samsung is the Japanese companies such as Panasonic and Bosch in Germany, and their interest in the automotive field is growing.

Moreover, other companies have not been able to bid for Harman in the first place, because Samsung has developed an "exclusive clause" (no-shop) in the acquisition negotiations with Harman, which makes Harman unable to negotiate with Samsung. Other companies are in contact. However, the $240 million liquidated damages are relatively low and should not affect other companies bidding for Harman.

Next is the price. According to Samsung's takeover offer, Harman's corporate value multiple is 9.2 times, which is lower than the three-year average of 9.5 times before the transaction announcement. The enterprise value multiple refers to the company value divided by the EBITDA expectation. The deal seems to have a higher valuation for Harman than Delphi and Visteon, but the comparison is not very accurate. For example, Harman's gross margin is 30.6%, higher than Delphi's 20.2% and Visteon's 14.2%. Until this year, Harman's share price has been higher than these industry rivals.

The bidding of other companies is likely to push up the sale price of Harman and benefit investors.

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