Samsung have been linked with Fiat in a potential deal to buy some or all of the parts operation, Magneti Marelli, in a deal that could be worth over $3 billion. In the detail, Samsung is interested in Magneti Marelli’s lighting, in-car entertainment and telematics business but would be prepared to buy the whole company in order to gain control of these divisions. The story was broken by unnamed industry sources, asking not to be named because the discussions are private. These sources have explained that the deal could be closed by the end of the year. Fiat’s stock price enjoyed a steep price rise of almost 9% on the back of this news, the greatest one day gain since October 2014. If this acquisition were to go through at $3 billion, it would be Samsung’s largest corporate purchase outside of Korea.
Samsung are already developing in-car systems and formed a specialist team in December 2015. They have been investing in automobile technologies: for example, in July the company invested in Chinese business, BYD Co., in order to gain exposure to the rapid growth in the sale of electric vehicles. Samsung have also worked with the auto industry for a number of years, where their OLED technology has been explored for in-car entertainment, navigation and even instrumentation purposes. Samsung’s long term objective is to compete in the driver-less car race, where we have seen considerable investment from both auto-manufacturers and technology companies. Driverless cars – and the many incremental steps of automatic car control between full manual and full auto – is seen as a key technology in the coming decades. Samsung is keen to shore up its business as the smartphone industry becomes keenly competitive and cut-throat. Samsung’s smartphone business may have peaked in 2013 as it faces stiff competition from Apple at the high end and numerous Chinese manufacturers at the lower to mid-range (although the company has reported a recovery in 2016). Samsung’s Vice Chairman, Lee Jae Yong, a director of Fiat Chrysler’s controlling stakeholder Exor for the last four years, is keen to keep Samsung competitive. According to Bloomberg, Samsung also has over $70 billion in cash and near-cash instruments, so a $3 billion acquisition would be relatively small.
Fiat Chrylser’s Chief Executive Officer, Sergio Marchionne, said in the company’s Q2 2016 earnings call that the business is in discussions with other companies as well as the deal with Google on driver-less cars. Sergio has a five year plan to 2019 to reduce corporate debt and so better position the auto-maker to find a partner business. A sale of the components business to Samsung would provide the parent business with a useful cash injection. The auto industry at large is also supportive of car manufacturers separating their components business with one analyst from London explaining how Ford and General Motors separated their respective businesses a number of years ago.
Given that Samsung have business interests across the world and in many different sectors, from shipbuilding to smartphones to memory chips, and given the push into driver-less and other car technologies, this deal would appear completely plausible. The last time Samsung were seriously involved in the automobile sector, the Samsung Motors Inc. division went bankrupt before being sold to French auto-manufacturer, Renault, in 2000. Of course in 2016, both the technology and auto manufacturer businesses are very different. Could we be seeing a Samsung AMOLED dashboard being fitted to Maserati cars before too long?