The two navigation-device makers are duking it out for ownership of the digital mapmaker. The loser risks being dependent on competitors
Digital maps are all the rage. Or so it seems from the surge in demand for suppliers of digital maps to navigation-device makers. Navteq (NVT) is being snapped up for about $8.1 billion by Finnish wireless-phone giant Nokia (NOK). And now TeleAtlas, a Dutch supplier of mapping data, is the object of a bidding war between Netherlands-based TomTom and Garmin (GRMN), which is headquartered in Olathe, Kan.
Three months after TomTom bid $2.8 billion for TeleAtlas, Garmin uncorked a surprise $3.3 billion offer on Oct. 31 that bests TomTom's by 15%. The following day, TeleAtlas gave TomTom five days to sweeten its offer.
An Intense Rivalry
Both suitors have a clear interest in landing TeleAtlas, one of only two digital map providers. Now that Navteq has gone to Nokia, whichever company loses TeleAtlas will rely on a rival for its mapping data. Garmin currently gets about 98% of its mapping data from NavTeq. "The world has changed over the last 90 days, and we didn't like the direction it was going," Garmin Chief Financial Officer Kevin Rauckman says of the period since TomTom's offer. "It could have potentially ended up being a difficult and awkward situation."
Awkward is putting it mildly. Garmin, with an expected $3 billion in sales this year, is the top U.S. maker of the personal navigation devices that motorists are scooping up in increasing numbers. But TomTom sells more units outside the U.S. And the competition between them has been white hot since TomTom attacked the U.S. market in 2006 (BusinessWeek.com, 8/28/06), landing shelf space with big retailers Best Buy (BBY) and Circuit City Stores (CC) and advertising aggressively on TV. Girding for attack on TomTom's home turf, Garmin has acquired distributors in Germany, Denmark, Italy, and Spain and has boosted marketing efforts, including buying advertising time during the Super Bowl. The two also have knocked heads over patents in the U.S. and European courts.
Now the two companies have a new rival in Nokia, which has sold more than 300 million mobile phones in the first three quarters of 2007 and intends to make navigation a feature on practically all of its phones in the coming years. Navigation-ready wireless phones already are starting to show signs of eating into the retail market for personal navigation devices, or PNDs (BusinessWeek.com, 9/14/07). Garmin, which focuses on automotive, marine, and recreational navigation devices, has sold 6.78 million units in that period. TomTom, which sells only automotive PNDs, has sold 5.3 million.
A Bidding War in the Offing
With the clock ticking on the TeleAtlas ultimatum, the bidding is likely to go higher. Executives with TeleAtlas had no further comment and TomTom executives did not return calls seeking comment. Rauckman suggests he's ready to go the distance: "We're pretty committed to our strategy of acquiring this company."
Analysts say Garmin has the needed firepower. "Garmin probably has more financial wherewithal to bid higher," says analyst Jonathan Braatz of Kansas City Capital.
How high? A serious response from TomTom would have to sweeten the pot by at least 10%, suggesting the price tag could go to $3.6 billion. So a second Garmin bid could easily reach $4 billion. "They can both go higher, and they can both afford it," says David Niederman of Pacific Crest Securities in Portland, Ore.
Some investors aren't so sure. Garmin's stock has dropped 17%, to $100.01, in the two days since it made the offer public.
Competing with Nav-Ready Phones
Should Garmin win, it will likely use the acquisition to build a raft of new products. Rauckman says, "We have a vision for much-improved mapping data. We want to make it even better with 3D mapping as that becomes available." Rauckman also suggests Garmin plans to compete with Nokia and other cell-phone makers on the wireless front. "As the market becomes more mobile, we'd like to add pedestrian-friendly content into the mapping and add some local searching capabilities."
The takeover craze in navigation data suppliers is likely to reach beyond map-data providers. Companies such as TeleNav and Networks In Motion, both relatively small, could become the next takeover targets. Both supply wireless carriers including Sprint (S), Verizon Wireless, T-Mobile (DT), and AT&T (T) with subscription-based navigation services that work with several wireless phones. Research firm iSuppli estimates that by 2011 some 440 million wireless handsets, or nearly one-third of those used worldwide, will be navigation-ready, representing a quadrupling of the number of nav-ready handsets in use in 2006.
And navigation is turning out to be the breakout data application wireless carriers have been looking for. A recent study by Nielsen Mobile, a San Francisco research firm, found that 13 million U.S. consumers have downloaded a navigation application to their phones. Moreover, of the $118 million in revenue generated from downloaded wireless applications, more than half came from navigation and location-based services.
The upshot for PND makers like Garmin and TomTom is that they have to embrace the ever-more-sophisticated wireless phone or risk a slowdown in sales of dedicated navigation devices. "They're going to have to adapt, either by making their own phones or owning the companies that supply the wireless carriers," says Sam Altman, CEO of Loopt, a Mountain View (Calif.) company that sells location-based software to wireless carriers. "Once you get good navigation on a device like an iPhone, do you really need a PND in your car?"