Navigation device maker Garmin is walking away from a costly bidding war with rival TomTom over Tele Atlas, a supplier of mapping data. Instead, Garmin (GRMN) worked out an agreement to get that valuable data from another source.
Garmin, based in the Kansas City suburb of Olathe, Kan., will extend through 2015 an existing contract to buy mapping from Navteq (NVT), the Chicago-based company that is being acquired by Finnish mobile-phone giant Nokia (NOK). Garmin also secured an option to renew the agreement for an additional four years. The companies also said they would explore "expanded points of cooperation" to improve mapping data quality. Financial terms of the deal were not disclosed.
The move brings an end to a dramatic takeover tussle that has shaken the navigation business to its core and fueled surges in the stock prices of takeover targets Navteq and Netherlands-based Tele Atlas. Though it has lost the bidding battle over Tele Atlas, Garmin sure looked like a winner to investors. It already buys about 98% of its mapping data from Navteq, so the extension of the current agreement lets it proceed without missing an operational beat. Garmin's plan for acquiring Tele Atlas included a transition period that would have lasted as long as two years.
Garmin shares, punished in recent days by investors who worried that a Tele Atlas takeover was too expensive, roared back to life on Nov. 16, opening at $100.52 a share, up $16.52, or nearly 20%. TomTom's stock improved on the news as well, rising €2.35, or almost 3%, in Amsterdam, while stock in Tele Atlas slumped €2.75, or almost 9%.
Financing the purchase wouldn't have been easy for Garmin. The company would have used much of its $1 billion cash reserve and borrowed the remaining $2.3 billion to do the deal. The acquisition would not have added to earnings for as long as three years. Garmin investors had savaged the stock. On the day before it announced its bid, Garmin's stock closed at a record high of $120.48. On Nov. 15, it closed at $84, or 30.3% lower. At the very least, by engaging TomTom in a bidding battle, Garmin forced TomTom to pay $2 billion more for Tele Atlas than it otherwise would have.
Garmin says it secured the extended Navteq arrangement under advantageous terms. Garmin CFO Kevin Rauckman says the deal was struck with Navteq management without involvement from Nokia, which has yet to close on its acquisition. "We've concluded this deal with Navteq and the terms are better than we had before," he said. Additionally, he said Garmin will yield a "significant profit" on the minority stake—estimated to be between 5% and 9%—it had acquired in Tele Atlas once TomTom finalizes its purchase.
As the only two major suppliers of digital mapping data used in navigation devices turned out by Garmin, TomTom, and other makers, Navteq and Tele Atlas had maintained a comfortable duopoly. The companies specialize in the constantly changing, detailed data on streets, addresses, locations of gas stations, hotels, and other points of interest that are used to make the maps of personal navigation devices more useful.
TomTom's Apparent Edge
That all changed in July when TomTom moved to acquire Tele Atlas for $2.3 billion. That deal kicked of feverish speculation that Navteq would be acquired too, either by Garmin or perhaps even by Google (GOOG) or Microsoft (MSFT). Instead, Nokia emerged as the surprise buyer, offering $8.1 billion for Navteq as part of a broader strategy to add navigation and mapping to its mobile phones.
Faced in part with the prospect of getting its mapping data from a competitor, either Nokia or TomTom, Garmin on Oct. 31 offered to pay $3.3 billion for Tele Atlas (BusinessWeek.com, 11/2/07). TomTom answered back with a $4.3 billion counter bid, (BusinessWeek.com, 11/7/07) and announced that it had not only raised its bid, but had acquired a 28.3% equity stake in Tele Atlas, making it that company's biggest shareholder in the process, and giving it a strong proxy voting base from which to repel another bid by Garmin.
The end of the bidding war closely follows the denouement of another fight between Garmin and TomTom, this one in the courts. The companies, which have squabbled over patents in courts in the U.S., Britain, and the Netherlands, jointly announced on Nov. 15 that they had settled all their outstanding litigation. They didn't disclose the terms.