(Adds Garmin building stake, details)
By Niclas Mika
AMSTERDAM Oct 31 Navigation device maker Garmin
(GRMN.O) made an unsolicited 2.3 billion-euro ($3.3 billion)
offer for Dutch digital map provider Tele Atlas TA.AS on
Wednesday, trumping an agreed bid from TomTom (TOM2.AS).
The move pits Garmin, U.S. market leader for navigation
devices that guide drivers, against its top rival and European
market leader TomTom.
A struggle to take the lead in the fast-growing industry had
been widely expected after U.S.-based Navteq NVT.N, Tele
Atlas's only global competitor, agreed this month to an $8.1
billion takeover by cellphone maker Nokia NOK1V.HE.
TomTom had triggered the consolidation by offering to buy
Tele Atlas in July, but Nokia's move -- at what was seen as a
full price -- left Tele Atlas as the only likely target of a
Garmin's offer is 24.50 euros for each share of Tele Atlas,
15 percent higher than TomTom's offer of 21.25 euros per share.
Net of the cash on Tele Atlas' balance sheet, Garmin's offer is
worth about 2.1 billion euros and TomTom's 1.8 billion.
Tele Atlas shares were up 15.8 percent at 27.80 euros by
1331 GMT in Amsterdam, well above Garmin's offer price, while
TomTom shares slumped 18 percent to 55.60 euros. Garmin shares
fell 8.8 percent on the Nasdaq to $109.86.
SNS Securities analysts said applying the multiples paid by
Nokia -- roughly 9 times 2008 sales and 24 times 2008 core
earnings -- yielded a price tag for Tele Atlas of between $2.3
billion and $3.3 billion, making Garmin's offer fair.
"But it is not about current and next year's earnings. It is
about the map becoming a key differentiator in the navigation
market going forward," SNS Securities said.
"The bidding war has just started."
The global market for portable navigation devices -- in its
infancy just a few years ago -- is estimated to be worth $4.2
billion this year and to grow to $12.8 billion by 2010,
according to market research firm iSuppli.
Analysts have said that TomTom could afford to pay more for
Tele Atlas, with estimates for a fair price going as high as 30
euros per share in a Reuters poll earlier this month.
Petercam analyst Eric de Graaf said TomTom made a strategic
error not to build a stake in Tele Atlas while the shares were
below its offer price, which could now cost it millions.
Garmin, for its part, has been buying Tele Atlas shares but
Financial Officer Kevin Rauckman did not say when or how many.
"We are familiar with the disclosure requirements, as those
are needed we'll comply with those requirements," he told
Reuters in an interview. Stakes in Dutch companies of 5 percent
or more must be reported to Dutch market regulator AFM.
Both TomTom and Tele Atlas said they would study Garmin's
proposed offer and gave no further comment.
Garmin is planning to launch its offer by Dec. 4, the day
TomTom's offer for Tele Atlas expires, and has secured financing
commitments. The offer will be conditional on at least 66.67
percent of Tele Atlas shares being tendered.
When Nokia unveiled its offer for Navteq, analysts said the
move was most problematic for Garmin as it could fall behind
since TomTom or Nokia would have first access to new technology
and could integrate it more tightly.
Nokia said on Wednesday Garmin's move would not impact its
offer for Navteq, Garmin's main digital map supplier.
As TomTom before it, Garmin promised to run Tele Atlas as an
independent business and give competitors non-discriminatory
access to Tele Atlas maps, but the company said it wanted
tighter control, consistency and quality for itself.
Credit Suisse CSGN.VX is advising Garmin. Lehman Brothers
LEH.N is advising Tele Atlas and Goldman Sachs (GS.N) TomTom.
Garmin also reported third-quarter earnings on Wednesday,
showing a profit rise and raising its outlook. For more details
of Garmin's quarterly results, please click on [ID:nWEN2056].
(Additional reporting by Reed Stevenson in Amsterdam and
Franklin Paul in New York)