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Samsung SDI to Buy Cheil for $3.3 Billion in Shares

March 31 (Bloomberg) -- Samsung SDI Co., a supplier of batteries to Apple Inc., agreed to buy Cheil Industries Inc. for about 3.5 trillion won ($3.3 billion) in stock to add chemical and electronic material businesses.

Cheil investors will receive about 0.44 of a share in an enlarged SDI for each share they own, according to a regulatory filing. Samsung SDI said the deal will take effect from July 1 if approved by stockholders. Share of both companies gained today.

The deal to combine two members of the Samsung Group, South Korea’s largest business group, expands the reach of SDI’s lithium-ion battery business through the chemical and materials supply chain of Cheil. Samsung is seeking a larger share of growing demand for rechargeable powercells in electric vehicles while also pushing to gain control of organic light-emitting diode technology used in displays.

“In the long run it’s a good buy for SDI because the merger will create synergies for both in areas such as cars and OLEDs,” Kim Chang Jin, a Seoul-based analyst at NH Investment & Securities said by phone today. “This will also help Cheil expand its customer channel to supply electronics materials and components as it literally has no customers in car industry so far.”

Samsung SDI jumped 6.6 percent, the most since September, to close at 161,000 won in Seoul. Cheil added 5.8 percent, the most since December 2011, to 71,700 won. Both companies are based in Gyeonggi province, about 60 kilometers (37 miles) south of Seoul.

Car Batteries

The combined operations will target annual sales of more than 29 trillion won in 2020, Samsung SDI said in a separate statement today. The offer is worth about 3.5 trillion won based on the March 28 closing price of Cheil.

In the short term, the deal will create financial strain for Samsung SDI, said Heo Pil Seok, the chief executive officer at Midas International, which oversees about $8.9 billion. In the longer term the acquisition will help SDI strengthen its battery business, he said.

“The latest deal implies that the group is seeing a bigger potential in batteries,” said Jae H. Lee, a Seoul-based analyst at Daiwa Securities Group Inc. “SDI is trying to expand its battery sales to global carmakers. With lackluster demand for OLED TVs, Cheil may use its OLED materials for dash boards or lighting in cars.”

Samsung Electronics Co., the world’s biggest maker of memory chips and smartphones, owns 20.4 percent of SDI, according to data compiled by Bloomberg.

To contact the reporter on this story: Jungah Lee in Seoul at jlee1361@bloomberg.net

To contact the editors responsible for this story: Michael Tighe at mtighe4@bloomberg.net Robert Fenner, Aaron Clark

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