Digital maps provider Tele Atlas has accepted TomTom’s increased offer of 2.9bn euros ($4.2bn) for the company, while rival bidder Garmin stays tight-lipped about whether it will raise its own offer.
The dilemma for both companies, who dominate the market for personal navigation devices, is that while Tele Atlas is a vital strategic asset, an acquisition even at current levels will dilute earnings for at least the next two years, and this will depress their share price.
Garmin stock has slipped from $123.80 before its own offer for Tele Atlas was announced to a current level of $91.95, while after hitting a high of 68 euros ($99.73) last month, TomTom shares are now at 55.49 euros ($81.53).
Tele Atlas shares are currently trading at 32.56 euros (47.75), above the 30 euros ($44) a share TomTom has offered, indicating hopes that the bidding war will continue.
Nokia’s decision to pay $8.1bn for digital-mapping market leader Navteq in October alerted the market to how valuable as asset a digital map provider would be as the mobile internet takes off, but short-term considerations govern stock market prices and whoever wins Tele Atlas is likely to suffer a much reduced stock market valuation.
This in turn would make them vulnerable to a takeover from a large company wishing to move into a lucrative market. Given the low penetration of GPS devices even in developed markets, Garmin and TomTom would be attractive to consumer electronics companies.