The way is now clear for its Amsterdam, Netherlands-based rival TomTom to acquire Tele Atlas with a bid it was forced to increase to 2.9bn euros ($4.2bn) to top the Garmin bid.
Cayman Islands-based Garmin also emphasized its decision to walk away from Tele Atlas by signing a six-year extension to its agreement with digital mapping market leader Navteq, which will allow it to use the company’s data through 2015, with an option to renew for an additional four-year period.
It said the two parties had agreed to pursue expanded points of cooperation that will result in improved mapping quality and coverage worldwide, and will drive further device innovation into the future.
They did not disclose specific details of the agreement but TomTom has claimed that Tele Atlas data would be improved by feedback from users of its devices and the Garmin announcement hints at a similar arrangement.
Garmin’s shares have been under pressure since it announced its offer for Tele Atlas because it said the deal would dilute its earnings for at least two years. Meanwhile, TomTom shares increased 7.2% to 60.85 euros ($89) on the news, suggesting that investors are prepared to take a longer-term view that software will be increasingly important for the companies as the functions of PNDs are increasingly available on mobile phones.
Mobile handset market-leader Nokia’s $8.1bn offer for Navteq means TomTom will have its work cut out to increase Tele Atlas’s market share. The company’s 2006 revenue of $358.9m trails the $581.6m achieved by Navtaq, which has Google as its most prestigious client.
Tele Atlas shares slipped 8.72% to 29.30 euros ($42.89) on the news that Garmin was out of the running.
Our View
This is a satisfactory outcome for all parties. Garmin has financially weakened its main rival TomTom by forcing it to increase its offer for Tele Atlas while at the same time snuggling closer to Navteq. TomTom now has an enhanced base of revenue outside that of PNDs, whose life is limited. Users of digital maps still have two competitive suppliers. The speed with which the two major digital map makers have been acquired is an indication that the mobile internet is about to take off.
