Global
Positioning System (GPS) based navigation devices are increasingly becoming must-have
gadgets for car owners, cyclists and even runners. But they would be little more
decoration for mere mortals to whom latitudes and longitudes are just numbers
too complicated to decipher. It is the digitised maps loaded into these cell phone-sized
devices that keep most users from getting lost. Little
wonder that European personal navigation device maker TomTom recently announced
that it would buy Tele Atlas, the company that supplies most of its mapping data,
for $2.8 billion (€2 billion) in cash and debt. It will offer Tele Atlas
shareholders €21.25 ($29.35) per share. The offer represents a 28 per cent
premium to Tele Atlas'' closing price on Friday 20 July, and has the backing of
both boards. Tele Atlas has about €200 million ($276 million) cash on its
balance sheet. Shares
shoot up Tele Atlas shares were up €5.72 ($7.90) or 35 per cent at
€22.27 ($30.76) per share in Amsterdam, suggesting that investors are expecting
a competing bid. TomTom shares were up €4.08 ($5.64) or 10per cent at €45.06
($62.24). It is entitled to a €20 million ($27.63 million) breakup fee if
the Tele Atlas board recommends a competing offer. The
acquisition may well transform the navigation device market. Here is an alliance
of two underdogs that may well turn the business in a new direction. Perhaps Navteq,
the world''s leading provider of geographical information systems, will feel the
biggest impact. A price war that was brewing between Tele Atlas and Navteq will
probably blow over. Tele Atlas has been making inroads against its larger competitor
recently, and snatched carmaker BMW as a customer from Navteq. As a result, Navteq
was expected to drop prices but, if TomTom buys Tele Atlas, that may no longer
be necessary. Market
mover Apart from TomTom, Tele Atlas has deals with celklphone giants Qualcomm
and Nokia Corp. Garmin, Google, Yahoo and AOL''s MapQuest mostly use Navteq. But
the larger players take at least some information from both. Analysts say they
have an interest in ensuring that neither Navteq nor Tele Atlas become too dominant
in geo-mapping. But this may now have to change. For
years, companies like TomTom and its larger rivals Garmin-the world''s leading
navigation device maker-and Magellan, have relied on companies like Tele Atlas
or Navteq for constantly updated and accurate street maps, making which is a highly
labour-intensive business. It has meant sales of €264 million ($364 million)
for Tele Atlas and $581 million (€421 million) for Navteq last year. Industry
watchers have predicted that the number of operating personal navigation devices
(PNDs) will zoom to 65.1 million in 2012 from 19.8 million in 2006. Given the
big boom ahead, the main competitor to Tele Atlas, Chicago-based Navteq, may get
unexpected business from device makers that don''t want to buy from Tele Atlas,
because it is owned by rival TomTom. On the other hand, Navteq might soon find
itself as the target of an acquisition bid. In
the latter case, leading GPS maker Garmin, with $1.8 billion in 2006 sales, is
the most likely potential acquirer, given its intense rivalry with TomTom and
the fact that it buys about 99 per cent of its maps from Navteq. But Garmin has
only $573 million in cash, and would have to either take on considerable amounts
of debt to raise the $6 billion to $7 billion price tag to put Navteq in the bag.
Chinese accounting But
Taiwanese electronics manufacturer MiTAC, which launched its Mio line of personal
navigation devices last year and immediately established a beachhead in an intensely
competitive market sees things differently, not least because it is Tele Atlas''
second-largest
customer after TomTom. MiTAC says its relationship with Tele Atlas won''t change
after the merger, as Mio''s gains in market share in North America will remain
unaffected by TomTom''s agreement with Tele Atlas. Notwithstanding
Chinese inscrutability, watch this space for developments in this field. There
are likely to be many in the months to come.
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