TomTom Tops Garmin's Bid for Tele Atlas

TomTom offers $4.2 billion for the digital map maker -- 27% higher than Garmin's offer.
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Navigation devices maker

TomTom

raised the ante considerably Wednesday when it offered $4.2 billion for digital mapping firm

Tele Atlas

.

The cash offer of $43.99 (30 euros) for a share of Tele Atlas represents a 41% increase above its previous offer. And it is 27% higher than rival

Garmin's

(GRMN) - Get Report

bid of $35.92 (24.50 euros).

TomTom also unveiled plans to purchase a 28% stake in Tele Atlas from the company's shareholders.

TomTom's offer now values Tele Atlas at ¿2.9 billion ($4.2 billion), but an analyst last week

suggested the value of Tele Atlas could reach as high as $5.5 billion.

Tele Atlas shares soared 5.11 euros ($7.49), or 18.9%, to 32.06 euros ($47.01) Wednesday on the prospects of a heated bidding war. Meanwhile shares of TomTom were off 1.53 euros ($2.24), or 2.3%, to 55.01 euros ($80.68).

Shares of Garmin sank $8, or 7.9%, to $92.56 in recent trading. The stock is down nearly 23% since the company's Oct. 31 bid for Tele Atlas.

The latest developments leave Garmin with few options. In its conference call with analysts last week, Garmin suggested that it was expecting a counter offer from TomTom, but the size of TomTom's latest offer and its strategic move to acquire a 28% stake may have surprised company officials.

If Garmin does bid higher than TomTom, it may have to reckon with the possibility of not having full control of Tele Atlas. And losing the bidding war for Tele Atlas to TomTom would put Garmin in an unfavorable position where its major data suppliers are owned by rivals looking to eat into its market share.

"Any action that Garmin takes will likely negatively impact its stock price," Aaron Husock, an analyst with Morgan Stanley told clients in a research note. "We expect Garmin shares to drift lower as earnings estimate revision momentum fades and the Tele Atlas bidding situation becomes increasingly dilutive and messy." Morgan Stanley owns shares of TomTom and has an investment banking relationship with the company.

Garmin clearly needs Tele Atlas. It faces a duopoly mapping industry where the two data suppliers,

Navteq

(NVT) - Get Report

and Tele Atlas, are no longer likely to be independent.

Last month,

Nokia

(NOK) - Get Report

offered to buy Navteq for $8.1 billion, while TomTom made the first bid for Tele Atlas in July. Garmin responded with a bid for Tele Atlas more than three months after TomTom's bid. Garmin declined to comment for this story.

With TomTom's revised offer on the table, Garmin has five business days to match the price. If Garmin bids higher, TomTom, which is taking a 28% stake in Tele Atlas, retains the first rights to match Garmin's higher price.

Should Garmin prevail in the bidding war, it may have to contend with a company in which TomTom has a significant shareholder stake. TomTom is also Tele Atlas' biggest customer and contributes 30% to the company's revenue.

Analysts say Garmin, if it wants to, can outbid TomTom because it is a larger company with a better cash flow.

TomTom could stretch up to a 40 euro bid ($58.66 a share) but could go no further, estimates Yair Reiner, an analyst with CIBC World Markets, which makes a market in Garmin shares.