By Joshua Jamerson and Adrienne Roberts
Nearly a decade ago, private-equity firms backed out of an $8 billion deal to buy Harman International Industries Inc. amid concerns the stereo-maker's worsening financial condition rendered it worth less than the price they agreed to pay.
The determination by KKR & Co. and Goldman Sachs Group Inc.'s buyout arm that Harman's financial prospects were bad enough to abandon the deal sent the automotive supplier's shares plummeting and fueled uncertainty just as a new chief executive took the helm.
Now, Harman is an automotive-technologies powerhouse with an array of businesses beyond just stereos and speakers. Harman, which agreed Monday to an $8 billion takeover from Samsung Electronics Co. , has increased its focus on developing software that help digital interfaces inside cars work. The company's sales for the year ended in June have nearly doubled to $6.9 billion from $3.6 billion in 2007, the year the private-equity takeover fell apart. Harman's stock is up about 60% since 2007, including soaring 25% Monday to more than $109 a share on the buyout deal.
Harman's aggressive push into the automotive world, helped by a string of acquisitions, culminated Monday with the Samsung deal.
The deal marks Harman's transformation from troubled hardware maker to promising software company and takeover target amid the high-stakes race touse technology to change how people drive. The automotive industry, tech startups and Silicon Valley giants are all working to develop fully autonomous vehicles, cars that drive themselves under limited circumstances and connective technology that embeds more features on the dashboard and can eventually allow automobiles to communicate with one another to help avoid crashes.
"We're excited about the car of tomorrow," said Young Sohn, Samsung's U.S. strategy chief, in an interview, adding that Harman helps the company keep pace with the competition instead of having to develop technologies itself.
The Samsung takeover positions Harman as an independent subsidiary that will be able to tap resources from the parent company to fuel continued growth, said Dinesh Paliwal, Harman's chief executive, in an interview. Harman's entire management team will remain, and employees will benefit from access to a larger company, he said.
The deal also vindicates Mr. Paliwal's turnaround efforts at Harman. He took over the company in 2007 when Harman's late founder Sidney Harman stepped aside. Mr. Paliwal closed factories, dropped unprofitable product lines, cut new-product roll outs and reshaped the board to get the ball rolling on reviving the company. His efforts to reshape the company provoked repeated disagreements with Mr. Harman, once its largest individual shareholder and chairman who for a time owned Newsweek magazine before his death.
Mr. Paliwal would go on to snatch up car-software tech companies like Symphony Teleca, an 8,000-employee software development company in Silicon Valley, and Red Bend, an Israeli software maker. Harman also bought network security firm TowerSec.
Samsung's addition of the Harman Mr. Paliwal has built instantly makes the South Korean smartphone maker a major player in the world of automotive technology, reflecting a quickening pace of innovation and an increased role for companies with deep pockets and a keen understanding of mobile services.
"The way technology is transforming, no one has all the goods," Mr. Paliwal said. "This deal is about synergy and growth. It's all about partnerships, and those choices decide the winners and losers."
Write to Joshua Jamerson at email@example.com
(END) Dow Jones Newswires
November 14, 2016 13:13 ET (18:13 GMT)
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