Nokia Corp. stepped up its spending spree last week, agreeing to acquire digital mapping company Navteq in a blockbuster, $8.1 billion deal.
The Finnish firm-which in the last year or so has out-shopped Paris Hilton-plans to spend $78 per share for Navteq, a 22-year-old, Chicago-based outfit. The offer is a 34% markup from Navteq’s stock price just a month ago.
Navteq’s data serves as a foundation for in-dash navigation systems and Web-based applications from companies such as Google Inc. and Yahoo Inc. The firm has actively worked to spur activity among mobile location-based developers in recent years, hosting competitions for GPS-enabled offerings at industry conferences and elsewhere.
Navteq generated $582 million in revenue last year and claims roughly 3,000 employees in 30 countries.
The announcement marks the biggest move yet in Nokia’s recent effort to expand beyond hardware into the world of mobile content and services. The industry’s No. 1 handset manufacturer has pocketed a digital music company (Loudeye), a social networking community (Twango) and is in the midst of taking over a mobile marketing firm (Enpocket). And Navteq’s technology will support Nokia’s own location-based efforts, which largely stem from the 2006 acquisition of Germany’s gate5 GmbH.
The Navteq deal is expected to close early next year.
Ovi connection
Navteq will maintain its Chicago headquarters and continue to offer its mapping data platform to players in the navigation industry. But the soon-to-be subsidiary is sure to play a major role in Ovi, Nokia’s ambitious direct-to-consumer play set to house the company’s music, mapping and social networking offerings.
“In terms of cost and cost synergies here, first and foremost, I want to emphasize this is about growth. This is about growth of the existing business. analysts estimate more than a 30% CAGR (compound annual growth rate) over the next three, four years,” said Nokia CFO Rick Simonson during a conference call following the announcement. “The place where we believe we get synergies is obviously in terms of combining some of the things that we would have to do that would be duplicative and in addition to having to license those fees. So obviously, the licensing fees that we would be paying to Navteq stay within the Nokia family. That is important. But also, in terms of what can be done around local search, the interactive traffic, and overall, there is some overhead reduction. We do believe there is value there.”
Nokia could have saved a bundle by moving earlier: shares of Navteq traded for as little as $30.58 in March, when rumors that the company was ripe for a takeover began to fuel a drastic increase in the company’s value. But financial analysts said the price was reasonable, as Navteq had quickly become a hot property after its rival Tele Atlas agreed to a $2.8 billion buyout offer from TomTom, a Dutch manufacturer of auto navigation systems.
Some analysts have suggested the Navteq deal may force Tom-Tom to raise its bid for Tele Atlas. Regardless, though, Navteq wasn’t likely to remain an independent player for very long. Nokia was forced to dig deep for a company that serves as a cornerstone for the navigation industry.
“While Nokia could have partnered instead of acquiring Navteq, the cash flow Navteq represents, and its ability to manage the future of Navteq’s technology makes the acquisition path more appropriate,” analyst Jack Gold commented. “Further, acquisition allows Nokia to defend its turf, particularly against companies like Google, who will ultimately be a major force in providing mobile-based services, likely through its own acquisitions.”
Consumers love maps
And while location-based services have yet to gain mass-market traction among mobile users, Nokia executives say they’re encouraged by consumer uptake on their hardware. Nokia Maps is one of the top five applications on the GPS-enabled N95, according to Anssi Vanjoki, executive VP of multimedia at Nokia, and the average N95 user accesses the application more than three times a week.
“This clearly shows that even in its very early stages of development, location services will be very popular and (a) true value-add application for our mobile device consumers,” Vanjoki said during the call. “I see that location and context information is a key component in our future Internet services, including search and navigation, photos and videos, as well as presence and communities. Our vision is that the location information helps build the next phase of the Web with context-centered services.”
Shopping spree
Nokia has bought itself an impressive portfolio. Loudeye was too quick to the mobile music market, losing millions before selling out, but the startup’s technology was embraced by carriers and other customers in Europe. Twango quickly gained momentum after launching a public site a year ago, and the company’s media-sharing offering appears particularly well-suited for mobile phones. And Enpocket was a pioneer in mobile marketing, scoring a major win last year when Sprint Nextel Corp. inked a deal to sell ads on the carrier’s deck.
Bringing those disparate companies together under the Ovi umbrella will be a Herculean feat, however. Integrating Navteq’s offerings may be particularly challenging, as navigation is likely to play a part in nearly every Ovi service. And several analysts believe Nokia is far from finished on the M&A front.
“This is a large acquisition and it leaves Nokia’s Internet services portfolio rather unbalanced,” Ovum’s Martin Garner opined. “We are sure that there are plenty of Nokia executives who would love to have an injection of $8 billion for expanding in their area. So Nokia will soon need to let the market know whether this is a one-off, or whether it signals a general acceleration of the Internet strategy with additional sizeable acquisitions to follow.”
