Nokia’s cash offer is 13.9 times Navteq’s 2006 earnings, considerably more expensive than the 2bn euros ($2.76bn) that personal navigation device vendor TomTom paid for Tele Atlas in July, which amounted to 10.4 times 2006 sales.
Apart from the benefits that it will bring to Nokia’s own product line, Navteq is expected to continue as a leading mapping provider to automobile companies, internet-based mapping applications, the PND market and services for government and corporate markets.
News of the deal led to a fall of 2.29% to $37.06 in Nokia’s share price on the New York Stock Exchange yesterday, as analysts questioned whether it had paid too much for the company. But the big loser was PND market-leader Garmin, a Navteq customer, whose shares fell 11.32% to $105.58.
Nokia will pay for its $78 a share cash offer with a mixture of cash and debt. While it will be dilutive to earnings in 2007 and 2008 on a reported basis, Nokia CFO Rick Simonson said it would be accretive on a cash basis in 2008. Nokia said the purchase price falls to $7.7bn when Navteq’s cash balance is taken into account.
In 2006 Chicago, Illinois-based Navteq reported income of $109.9m on revenue 17% higher at $581.6m. It employs 3,000 people in 30 countries, including 700 cartographic analysts who drive million of miles annually updating the database to maps for 69 countries.
Nokia CEO Olli-Pekka Kallasvuo said location-based services are one of the cornerstones of its internet services strategy and said the acquisition is another step to its becoming a leading player.
Nokia signaled its intention to be a big player in location-based services when it paid an undisclosed sum in September 2006 for gate5, a Berlin, Germany-based supplier of mapping, routing, and navigation software and services.
It said it has been encouraged by the take-up of its recently launched N95 smartphone with embedded GPS technology. It said there is also potential for pedestrian navigation devices, which have hardly any market penetration.
Our View
This is a hugely expensive acquisition that is justified on the theory that there is about to be enormous demand for location-based services. History tells us that the market take-up of new services often lags long behind expectations. Nonetheless, Navteq has an impressive financial record and an enviable customer base. Even if its fails to make a swift impact on Nokia’s own devices, it has enormous growth opportunities in other markets that will repay its purchase price in the long term.
