Garmin has unleashed a bidding war in the digital mapping market by offering 2.3bn euros ($3.3bn) for Tele Atlas, which had in July accepted a 2bn euros ($2.8bn) offer from rival GPS device vendor TomTom.
As Nokia agreed to pay $8.1bn for digital-mapping market leader Navteq earlier this month, whoever buys Tele Atlas will have a dominant position in the personal navigation device market, which will increasingly become software-based as the technology moves to mobile phones rather than standalone devices.
Garmin CEO Dr Min Kao said that given the high growth and rapid change the navigation market has undergone, he felt that now was the right time for Garmin to move ahead with this proposed combination with Tele Atlas.
Together, we believe that we can create the best available mapping solutions for our customers around the world. We also intend to make Tele Atlas’s content available to the entire navigation market on a non-discriminatory basis, promoting healthy competition, with significant benefits to the navigation market and all its consumers, he said.
Garmin’s shares, which have more than doubled over the past year as a result of its growth, fell 4.31% to $115.29 on fears that Garmin’s offer was too high. However, in Amsterdam, TomTom’s stock fell 20.04% to 54.20 euros ($78.18), reflecting its reduced prospects now that its bid has been topped.
While Garmin insisted that it believes in an independent digital mapping sector, TomTom’s offer forced it to make a move, rather than rely on mapping from competitors.
The Cayman Islands-based company’s confidence has been boosted by the fact that it has comfortably regained market leadership and is outperforming its Amsterdam, Netherlands-based rival. With navigation devices flying off the shelves in the developed world, Garmin increased third quarter net income by 78.6% to $193.51 on revenue 57.4% higher at $728.7m.
By contrast, over the same period, TomTom increased income by 35.7% to $140.40 on revenue 20.8% higher at $607.9m.
Garmin now expects revenue this year to increase by at least 64% to more than $2.9bn while earnings per share will be up by 45% to exceed $3.40. This will take it far ahead of TomTom, which predicts sales this year will be between 1.6bn and 1.8bn euros ($2.2bn and $2.48bn).
Both Tele Atlas and TomTom were closeted with their advisors and would make no comment on the new bid, though Tele Atlas promised a market statement when it had reached a conclusion. Similarly, Garmin refused to say how it would react if TomTom increased its bid, though there is speculation it could sweeten its cash offer with some of its stock.
While Tele Atlas expects to grow revenue at 20% annually for the next few year, Garmin said the acquisition would be dilutive for the next two years and be accretive by year three.
The attraction of a digital mapping company is that it offers the prospect of a recurring revenue stream, particularly if the basic navigation information is added to other features, such as point of interest, which in turn could generate advertising income.
While Garmin’s 25 million user base is small compared with the 900 million claimed by Nokia, continuing revenue will become increasingly important as device sales fall as markets become saturated. Moreover, Nokia’s takeover of Navteq will make Tele Atlas increasingly attractive to other mobile phone companies that account for 60% of the market.
Like TomTom, Garmin feels it can make Tele Atlas’s products increasingly accurate by adding feedback from users and constantly updating the map.
It tried to reassure Tele Atlas users by saying the company would continue as a separate entity, with its existing management team and still be based in the Netherlands.
Garmin took its time but has made the right move by launching a rival offer for Tele Atlas. In a market with only two big players, and huge barriers to entry, companies will have to pay enormous prices for scarce resources. Mapping information is set to become vital to all manner of applications. Whoever loses the battle for Tele Atlas will be a hugely diminished company.