Garmin Wins by Losing

grmn may have lost its bid for TA.AS, but the maker of global positioning system (GPS) devices is looking pretty savvy right now. Until recently, Garmin was backed into a corner. There are only two providers of mapping data, but Garmin’s archrival, TOM2.MU, was acquiring one — Tele Atlas — and nok was acquiring the other, nvt. Garmin abandoned its usually reserved M&A strategy to make a surprise $3.3 billion bid for Navteq. That move had two effects: 1. It forced TomTom to raise its own bid from $2.3 billion to $4.3 billion. 2. The threat of Garmin taking over Tele Atlas turned up the heat on negotiations with Navteq. In the end, Garmin dropped its bid. But it now has what it probably wanted all along: a long-term contract with Navteq, and a rival saddled with an extra $2 billion in debt. “They have demonstrated that sometimes companies have to risk appearing inconsistent publicly to pursue complex negotiations,” db analyst Jonathan Goldberg wrote. The fight over Tele Atlas reminds me of the concept of the winner’s curse, endlessly applicable to all kinds of financial decisions. You presumably win an auction, whether for a company, a house, a baseball free agent or a limited edition doll on eBay, because you’re willing to pay more than every other bidder thinks the asset is worth. Assuming a few things (1. plenty of bidders; 2. those other bidders are smart and rational; 3. you don’t have some unique advantage or insight into the asset’s worth), the fact that you won suggests you may be “cursed” with a new possession you paid far too much to acquire.

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