Garmin and TomTom Vie for TeleAtlas

The two navigation-device makers are duking it out for ownership of the digital mapmaker. The loser risks being dependent on competitors

by Arik Hesseldahl

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.