Samsung is revving its acquisition engine in anticipation of a coming boom in auto electronics.
Better known as the maker of Galaxy smartphones and flat-screen televisions, the South Korean company is in talks to buy some or all units of auto-parts maker Magneti Marelli from Fiat Chrysler, Bloomberg News reports, citing people familiar with the matter.
Among the businesses it's looking at are lighting, in-car entertainment, and telematics, a fancy word for electronics and systems used in transportation, with a price tag of $3 billion or more, according to the report.
It could be a smart deal for both parties.
Samsung, in a bid to diversify its revenue sources, has already made a foray into the car business with a 3 billion yuan ($453 million) stake in Warren Buffett-backed Chinese car and battery maker BYD. It's looking to expand its presence in the industry, and Magneti Marelli is a good place to start.
The Italian company, whose partners include the Scuderia Ferrari Formula 1 team, is a virtual catalog of all the products Samsung may seek to get into. Its entertainment systems would integrate easily with the South Korean's offerings of semiconductors, displays and electronics.
More strategically, it's the company's telematics unit that can give Samsung a deep foothold into an industry which has longer product cycles and more loyal customers than the fast-paced electronics devices sector. Unlike smartphones and TVs, auto-electronics is a high-barrier business to get into. Because safety is of chief concern and companies can take years to design and roll out the final product, once a component manufacturer is chosen, they're likely to remain anchored in the supply chain for many years to come.
Even the more pedestrian business of automotive lights, which are connected to the rest of a car's computer systems, could make for a more stable long-term revenue driver than the boom-bust cyclical display business which Samsung dominates.
Fiat Chrysler, meanwhile, is focused on improving its capital structure and has been hard at work trying to reduce debt, Bloomberg Intelligence senior credit analyst Joel Levington writes. Any chance to get some cash to keep cutting that debt would surely be welcome by both equity and debt investors.
With news of the Samsung-Fiat Chrysler talks now public, look for other players to start hunting deals.
Samsung's biggest rival in electronics manufacturing, Foxconn, has already said it wants to be a force in auto-electronics with Chairman Terry Gou fond of name-dropping Tesla chief Elon Musk to investors and media. He's also made known his disdain for both Samsung and BYD, so this Magneti Marelli deal would particularly irk him.
And to that we say: Gentleman, start your engines.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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