July 23 (Bloomberg) -- TomTom NV, the world's largest maker of car navigation devices, agreed to buy digital-mapping company Tele Atlas NV for about 2 billion euros ($2.77 billion) in cash, adding information and routes for drivers.

TomTom, based in Amsterdam, offered 21.25 euros a share, Den Bosch, Netherlands-based Tele Atlas said in a statement. The bid is 28 percent more than the July 20 closing price.

Tele Atlas is the world's second-biggest producer of maps and will let TomTom deliver real-time updates on routes to its more than 10 million navigation devices. TomTom also raised its sales forecast and reported second-quarter profit that beat estimates on demand for its $280 devices. The stock had its biggest gain in 15 months.

``The numbers were superb and this acquisition clearly shows where TomTom is heading,'' said Patrick de Pont, an Amsterdam- based analyst at Kempen & Co., which rates both shares ``hold.'' ``TomTom is focused on making navigation as good as possible.''

Shares of TomTom surged 11 percent to 45.50 euros, the biggest advance since April 2006. Tele Atlas shares jumped 31 percent to 21.69 euros, the biggest increase ever for the Dutch and German shares. Shares of Chicago-based Navteq Corp., the world's biggest maker of maps, also posted a record surge, rising as much as 24 percent to $59.95, and closing at $57.33 at 4 p.m. in New York Stock Exchange composite trading, a rise of $8.95.

Separate Unit

Tele Atlas, which has lost money every year since at least 1997, will continue as a separate unit, selling to companies other than TomTom. The offer won't have ``significant negative consequences'' for the workforce, the companies said.

TomTom's stock has doubled in the past two years on demand for its devices that stick to the dashboard and help drivers find their way, avoid traffic and receive phone calls. TomTom's navigation systems automatically act as map surveyors, gathering feedback that can be incorporated into Tele Atlas maps, TomTom said. Its largest competitors in navigation systems include George Town, Grand Cayman-based Garmin Ltd.

In the second quarter, TomTom had a little less than 50 percent of the European market for portable navigation devices, and more than 20 percent of the North American market. TomTom expects its U.S. market share to increase in the second half, Chief Executive Officer Harold Goddijn said on a conference call.

TomTom forecasts that the North American market for personal navigation devices will increase to as many as 7 million units this year from 2.5 million in 2006. In Europe, the market will almost double in volume to between 14 million and 15 million units from 8.5 million, the company said in a statement today.

`Maturing Market'

The takeover makes ``strategic sense,'' Marcel Achterberg, an Amsterdam-based analyst at ING, wrote in a note. ``TomTom is in a commoditized and maturing market and the vertical integration with one of the few leading map content providers opens up new opportunities and raises the barriers to entry.''

TomTom had revenue of 380 million euros and profit of 68 million euros in the second quarter, the company said in a separate statement today. The results beat analysts' estimates.

The company also raised its forecast for unit shipments this year to as many as 9 million from an earlier goal of 7 million to 8 million units. TomTom targets a gross margin, the percentage of revenue left after subtracting manufacturing costs, of at least 40 percent, from an earlier forecast of about 40 percent.

The aggregate value of the deal is 1.8 billion euros, excluding about 200 million euros of cash on Tele Atlas's books, the companies said. That values the company at about 28 times projected 2007 adjusted earnings before interest, taxes, depreciation and amortization, a measure of cash flow.

The deal values Tele Atlas at 81 times estimated 2007 per- share earnings, while Navteq sells for 36 times estimated profit.

Shareholder Support

The supervisory and management boards of Tele Atlas support the offer, according to the statement. International Asset Management BV and the company's board members, who own a total of 17.4 percent of the outstanding capital, will sell their shares.

Tele Atlas is talking to shareholders now about the offer, Chief Executive Officer Alain De Taeye said at a news conference.

TomTom is entitled to a breakup fee of 20 million euros in case Tele Atlas decides to recommend a competing offer to its shareholders. The companies should be able to complete the deal by the end of the year, they said.

``We see the chance of a competing offer as negligible,'' Maurits Heldring, head of Dutch equity research at Kepler Equities, said in a note to clients. Navteq ``will not be allowed to make an offer and other industry players cannot generate the synergies that TomTom can,'' he said.

Peter-Frans Pauwels and Pieter Geelen founded the company that became TomTom in Amsterdam in 1991, according to the company's Web site. The original business developed applications for handheld computers.

Taking on Debt

TomTom's portable devices for cars and other vehicles have a touch-screen display and employ the global positioning system, or GPS, a satellite navigation system used for determining one's precise location on the planet.

Tele Atlas was formed when De Taeye merged his Belgian mapping company with a Dutch company. It first sold shares to the public in 2000 at 19 euros each. The stock fell as low as 81 cents in 2003, before rebounding to a high of 32.60 euros in 2005.

Goldman Sachs Group Inc. agreed to provide financing for the deal and served as TomTom's financial adviser.

TomTom will take on between 1.3 billion euros and 1.5 billion euros in debt to finance the deal, Chief Financial Officer Marina Wyatt said after a press conference in Amsterdam. The company aims to have about 200 million euros on its balance sheet including Tele Atlas's cash and the cash it will generate between now and completion of the deal, she said.

Lehman Brothers Holdings Inc. and Atlas Advisors provided financial advice to Tele Atlas, while Skadden, Arps, Slate, Meagher & Flom and Houthoff Buruma NV gave legal advice.

To contact the reporters on this story: Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net; Joram Kanner in Amsterdam at jkanner@bloomberg.net

Last Updated: July 23, 2007 16:11 EDT