Like former Yankee Alex Rodriguez, Tele Atlas N.V. plans to cash in on the free-agent market.
The Netherlands-based digital mapping company in July accepted a bid of $2.8 billion from TomTom NV, agreeing to recommend the offer to shareholders. But Tele Atlas last week pounced on a superior $3.3 billion offer from TomTom rival Garmin Ltd., giving TomTom until Thursday to match Garmin’s offer-and return fire in what could become an expensive bidding war.
“Under the TomTom agreement, if Tele Atlas receives a superior proposal, TomTom has a right to match that superior proposal within a five-business-day period,” Tele Atlas said in a public statement. “In the event that TomTom chooses not to match the Garmin proposal, the boards intend to take up Garmin’s invitation and meet with Garmin’s management.”
Hot market
Garmin’s offer comes just a month after Nokia Corp.’s successful $8.1 billion bid for Navteq, a Tele Atlas rival, and Navteq’s steep price tag illustrates how quickly location-based services went from warm to torrid. Nokia will pay $78 a share for Navteq, but the company’s stock traded for as little as $30.58 per share in March, when rumors that the company was ripe for a takeover began to fuel a surge in the stock’s value.
Both firms provide data that serve as the foundation for a host of offerings including Web-based applications (such as those from Google Inc. and Mapquest) and mobile location-based services from Sprint Nextel Corp., Verizon Wireless and other carriers.
Navteq’s acquisition leaves Tele Atlas as the lone, sizable player on the market. And while the company has yet to finish a year in the black-it lost $19 million last year-its attractiveness underscores the potential investors see in the LBS space. Analysts have suggested TomTom could increase its offer up to $4.3 billion, and other wellheeled firms may join the fight.
Location, location, location
Companies such as Navteq and Tele Atlas “now occupy the most important position in the global GPS navigation supply chain,” iSuppli Corp. reported recently. The market research firm said that while Garmin had been mentioned as a potential acquisition by Microsoft Corp., a more likely target would be TomTom-if its efforts to acquire Tele Atlas are successful. “This is because the key item in the supply is the map IP, rather than the navigation devices themselves,” iSuppli proclaimed.
But it’s not just Navteq and Tele Atlas that are having money thrown at them. Venture capitalists have invested $126 million in private companies in the consumer LBS sector so far this year, exceeding figures for each of the last three entire years, according to Rutberg & Co. That investment is being spread across semiconductors, platforms, applications and devices, the firm said, and is spurred in part by carriers that have rolled out consumer-friendly location-based offerings at reasonable prices.
This year “represents a first inflection point for the growth in consumer LBS,” according to Rutberg. “Importantly, CDMA carriers in Japan and in the United States have seen material adoption of navigation services. In addition, GSM carriers across Europe, Asia and North America are beginning to launch GPS-embedded handsets. Further, we are seeing carrier and OEM experimentation with new consumer LBS services, business models and platforms.”
Those factors are expected to fuel continued mergers and acquisitions in the consumer navigation space, especially in mobile, Rutberg said. But the space still faces considerable hurdles as it evolves from the perennial “next big thing” to a real, viable business.
“Significant challenges remain for consumer LBS, which in our view limits visibility on a second inflection point of growth,” according to the Rutberg report. “Most importantly, business models for location information ownership, control, access and costs are unclear. In addition, the timing for meaningful GPS penetration in GSM handsets is uncertain.”
