Nov. 16 (Bloomberg) -- Garmin Ltd., the largest U.S. maker of car-navigation devices, withdrew its bid for Tele Atlas NV, clearing the way for rival TomTom NV to buy the mapmaker for 2.9 billion euros ($4.25 billion). Garmin and TomTom shares rose.

Instead of raising its 2.3 billion-euro offer, Garmin struck a six-year deal to get maps from Tele Atlas rival Navteq Corp., with an option to extend it by another four, the George Town, Grand Cayman-based company said in a statement today.

Garmin avoided the burden of absorbing money-losing Tele Atlas while extracting better terms from Navteq, Dougherty & Co. analyst Jeff Evanson said. Garmin can focus on building traffic information and business listings into its products without having to pay to develop the underlying maps, he said.

``The Tele Atlas acquisition didn't make sense relative to what they were able to strike with Navteq,'' said Minneapolis- based Evanson, who recommends buying Garmin shares and doesn't own any. ``This is getting to lock in the commodity side of the map business and free your time and dollars to focus on the value-added layers on top of the map database.''

An acquisition and integration would have diluted Garmin's profit until 2010, American Technology Research analyst Rob Sanderson wrote in a Nov. 12 research note. Amsterdam-based TomTom, which already uses Tele Atlas more extensively, will absorb the company more easily, Sanderson wrote.

Garmin rose $13.51, or 16 percent, to $97.51 at 4 p.m. New York time in Nasdaq Stock Market trading, the most in five years. TomTom added 3.40 euros, or 6 percent, to 60.15 euros in Amsterdam, and Tele Atlas shares fell 2.77 euros, or 8.6 percent, to 29.33 euros.

`There's Relief'

``There's relief because the bidding had gone to a level that people didn't like the earnings dilution,'' Needham & Co. analyst Rich Valera said. New York-based Valera advises investors to hold their Garmin shares and doesn't own any.

In the longer term, TomTom may have an advantage in the market for satellite-navigation devices, which will grow 20 percent to $10 billion this year, according to Reading, U.K.- based industry researcher Canalys.

Because it will own the underlying maps, TomTom may be able to more easily combine it with a navigation device and add traffic, gas station and restaurant information. Garmin will have to obtain maps from its rivals before adding its own data and services, Valera said.

`Strategic Disadvantage'

``The strategic disadvantage they will have will continue as an overhang,'' he said.

Garmin may also have to pay more for maps or even lose access to them as competition intensifies, Canaccord Adams analyst Jeff Rath said.

Garmin wouldn't say how much it's paying Navteq, and spokeswoman Jessica Myers declined to comment on what will happen after the contract expires. The agreement ensures the company isn't at a strategic disadvantage, she said.

The company bid for Tele Atlas in October after mobile-phone maker Nokia Oyj announced its $8.1 billion takeover of the larger mapmaker Navteq.

Garmin's hostile bid forced TomTom to raise its original July offer 41 percent to 2.9 billion euros, or 30 euros a share, on Nov. 7. The next day, the Tele Atlas board recommended that shareholders accept TomTom's proposal.

At stake are maps of 20 million kilometers (12 million miles) of roads in 200 countries compiled by Den Bosch, Netherlands-based Tele Atlas. Building a digital map to match those made by Tele Atlas and Chicago-based Navteq would require $1 billion and take as long as 10 years, estimates Rath, who is based in Vancouver.

Weather the Attack

The Tele Atlas purchase might make TomTom better equipped than Garmin to weather an attack by mobile-phone makers and car companies, both of which are adding navigation tools to more of their products. TomTom will get extra revenue by licensing maps to other phonemakers and wireless-service providers, said Blair Swedeen, a principal at Partenza Consulting in San Francisco.

``The most critical component to the device is the map,'' said Swedeen, whose firm advises navigation companies, before today's announcement. ``This is really a move to become more of a service provider and have more value added than just the hardware.''

Garmin, meanwhile, won't have that revenue stream and must rely on its devices, he said. Car-navigation machines accounted for 71 percent of Garmin's total revenue of $728.7 million in its latest quarter. Products used in sports, aviation and boating supplied the rest.

Nokia, the world's biggest mobile-phone maker, said it will add GPS tracking to dozens of models by the end of 2008. The Espoo, Finland-based company and other handset makers will sell 162 million GPS phones this year, dwarfing the combined 20 million units that Garmin and TomTom have said they will sell.

By 2011, 444 million phones, almost a third of those shipped, will have GPS in them, El Segundo, California-based researcher iSuppli Corp. estimates. That's a customer base that TomTom, as a map owner, may be able to tap better, Canaccord's Rath said.

To contact the reporters on this story: Ville Heiskanen in New York at vheiskanen@bloomberg.net

Last Updated: November 16, 2007 16:13 EST