Harman acquisition is contested

Industry

Published: 13 Jan. 2017, 19:35

Harman acquisition is contested

Samsung Electronics’ ballyhooed acquisition of a U.S. audio and auto components developer is facing resistance.

Shareholders of Harman International Industries say the Korean tech giant is paying too little and are suing Harman’s management for $8 billion.

According to the Delaware Chancery Court, shareholders of Harman led by Robert Fine opened up a class-action lawsuit against Harman CEO Dinesh Paliwal and other directors for breach of duty on Jan. 3, accusing them of failing to look for buyers with a better offer than Samsung and agreeing to terms disadvantageous to the company, ultimately hurting investors.

The news comes as Samsung’s vice chairman, Lee Jae-yong, is being questioned by an independent counsel as a suspect in a bribery case that contributed to the impeachment of President Park Geun-hye.

The terms of the acquisition that Harman shareholders call problematic include setting an exclusive negotiation period with Samsung under a “no-solicitation provision,” which means Harman would not negotiate with other potential buyers. Harman also agreed to pay a $240 million fee if it pulled out of the deal.

“These provisions, particularly when considered collectively with the board’s inherent conflicts, substantially and improperly limit the board’s ability to act with respect to investigating and pursuing superior proposals and alternatives, including a sale of all or part of Harman,” Fine was quoted as saying by U.S. journal Law360.

Earlier in December, U.S. hedge fund Atlantic Investment, a 2.3 percent stakeholder of Harman, had announced its objection to the deal citing the same reasons. Founder Alexander Roepers told The Wall Street Journal in December, “Harman’s highs above $145 in April 2015 are proof that the company’s growth plan announced in August could get the stock to nearly $200.”

Samsung released no official statement on Friday, saying the lawsuit is against Harman, not it. Industry insiders believe the deal could go through as the price was set on a market consensus at the time.

Harman and Samsung announced the merger on Nov. 14. Samsung agreed to pay $112 per share, adding a 28 percent premium to Harman’s closing stock price on Nov. 11, the previous trading day, and a 37 percent premium to Harman’s 30-calendar day volume weighted average price ending Nov. 11.

“The agreement has been unanimously approved by the boards of directors of both companies,” Harman said in a statement in November.

In a subsequent meeting with the Korean press at Samsung Electronics’ Seocho headquarters on Nov. 22, Harman’s chairman, Paliwal, said he was “very positive” and excited about the synergy to be reaped from the Samsung-Harman deal, scheduled for completion by September 2017.

For Samsung, the deal was a major move last year to strengthen its presence in the so-called connected car market, which is growing at a rapid pace. Samsung projected the automotive electronics market would grow to more than $100 billion by 2025.

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]