BANGALORE (Reuters) - U.S. navigation device maker Garmin Ltd GRMN.O said on Monday it has no plans to build its own maps after losing a bidding war for digital map maker Tele Atlas AS TA.AS to Dutch rival TomTom AS TOM2.AS.
Garmin last week announced an extended partnership with the only other global digital map maker Navteq Corp NVT.N, which is being acquired by Nokia Oyj NOK1V.HE, and dropped out of the race for Tele Atlas after TomTom raised its bid to 2.9 billion euros ($4.25 billion).
Investors cheered the move, pushing Garmin shares up 16 percent on relief that it would not have to overpay for Tele Atlas. But analysts warned that Garmin may suffer in the long-term without owning one of the two global map makers in the fast-growing portable navigation market.
Garmin Chief Financial Officer Kevin Rauckman told Reuters the deal with Navteq would give it all the benefits that TomTom would get with Tele Atlas, and dismissed concerns that the partnership may be affected by Navteq’s pending acquisition by Nokia.
“The agreement with Navteq will have every bit as strong an influence into the maps as TomTom will have with Tele Atlas,” Rauckman said in a phone interview on Monday.
TomTom is hoping to tap the millions of users of its devices to spot inaccuracies in Tele Atlas’s maps and to gather information about traffic flows. TomTom gets 16,000 pieces of user feedback a month, but so far has not been able to make the best use of this information because it did not own the underlying maps.
Drivers can alert Tele Atlas to blocked roads, name changes, or a different layout of an intersection faster than the company’s surveyors can, allowing it to constantly update its maps, after the takeover.
“The strategic relevance is high enough to warrant that price,” Petercam analyst Eric de Graaf said in a research note, referring to TomTom’s 30 euros ($43.97)-per-share offer for Tele Atlas, which compared to Garmin’s 24.5 euros ($35.91) per share.
Garmin said on Friday its supply deal with Navteq was extended to 2015 with an option to renew for another four years. Financial details were not disclosed.
Rauckman said Garmin will be able to incorporate customer feedback and the skills of its own cartography team in improving maps in the Navteq partnership, and an acquisition was not the only way forward.
However, he said Garmin was always open to acquisitions from tens of millions of dollars up to multibillion dollars.
Wedbush Morgan Securities analyst Scott Sutherland said Garmin’s decision to walk away from a potentially dilutive deal in Tele Atlas was positive in the short-term.
The Navteq deal was enough to make up for any advantage TomTom might have in the next few years, but in the long-term, Garmin would have to take more action, such as building its own mapping network, Sutherland said.
Rauckman said Garmin was not planning on developing its own maps but it would continue to develop its cartography team.
CIBC World Markets analyst Yair Rainer said Garmin has failed to address the strategic rationale it tried to sell to investors when it first joined the bidding war for Tele Atlas.
While Garmin is likely to benefit as Nokia will have money to pour into Navteq to help it build more maps, the cell phone maker’s own devices could be a threat in the longer-term.
“Nokia will not be as selfless a partner for Garmin as Tele Atlas will be for TomTom,” Rainer said.
Additional reporting by Niclas Mika in Amsterdam; Editing by Pratish Narayanan
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