(Adds Garmin building stake, details)
By Niclas Mika
AMSTERDAM, Oct 31 (Reuters) - 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 counterbid.
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)