On October 31, Garmin (Nasdaq: GRMN) announced it will make a €2.3 billion ($3.32 billion) offer for Tele Atlas NV (OTC:TLATF), topping a €2 billion bid from TomTom NV. Garmin’s move threw a new factorial into the wave of global consolidation of Location Based Services [LBS] and GPS industry, after Nokia Corp. (NYSE: NOK), on Oct. 1, said it plans to buy Navteq Corp. (NYSE: NVT) for about $8.1 billion.
So far the bidding only involves Tele Atlas – the barely profitable European map provider and the competing acquirers TomTom vs Garmin. With its deep pocket, Nokia’s acquisition attempt with a much higher price tag for NAV – the much larger and very profitable competitor of Tele Atlas - has not been challenged.
How will the story develop before the dust finally settles?
A consumer could care less which map his/her GPS gear or cell phone uses as long as it works well. However, to Garmin and TomTom, controlling or losing control to map and data could mean life and death because you don’t want to share your hardware design secret and future development with any one else, let alone your competitors.It is interesting to notice that all three acquirers here are hardware gear makers. If they succeed, they all face the difficulty in convincing future business customers that they will fairly share their digital maps and data with their gear maker rivals, despite all three promise to do so.
By nature, maps and data are inherently extension of software and integrated part of a complex information system. Neither Tele Atlas nor NVT should not be controlled by a gear maker. Instead, it is much more beneficial to the consumers, businesses, the Internet community, and the technological innovation for maps and data to be controlled by a large Internet, software, IT or a large business conglomeration, such as Google (NASDAQ:GOOG), Microsoft (NASDAQ:MSFT), or even Oracle (NYSE:ORCL), SAP (NYSE:SAP) or GE (NYSE:GE), which have enough resources, can afford the high maintenance costs, and serve all the business and individual users well. The fight for control over maps and data started from the smaller and lower-priced target Tele Atlas, but the story may not end here. When Tomtom and Garmin become exhausted in the fight for Tele Atlas, a larger guy, such as Sumsang or Motorola could step up and beat both. If the value of Tele Atlas surpasses $4 billion, the deal would overshadow Nokia’s $8.1 billion offer for NVT. By then, the bidding war could extend to the Navteq/Nokia deal. The situation would become even more exciting -- imagine if Microsoft makes a bid, what Google would do?
On the October 24 Google Analyst Day meeting, the first question after the last speaker CEO Schmidt was “On Google maps, are costs higher with Nokia/Nateq and TomTom/TeleAtlas deals?” The immediate, probably instinct and subconscious answer by Brin, one of Google's founders was: “Neither deal closed ……”
Although Nokia has big plans for LBS and GPS applications for their mobile phone users, in reality it has so far invested very little without track record. Realizing it may compete with its own customers if Nokia acquires NVT, when the price becomes too high and when it realizes its interest is not threatened if Google/Microsoft or a large business other than a gear maker controls the maps and data, Nokia may give up.
Eventually, Google may own NVT and Microsoft may own Tele Atlas; Or MSFT would own NVT while GOOG owning Tele Atlas -- depending on who is willing to pay the 3-4 times higher price and push NVT's value way above $10 billion -- when Facebook is worth $15 billion. Remember that NVT has spent 20 years to build-up its map kingdom.
In fact, NVT impressed the Wall Street by increasing net income and revenue about 50% quarter after quarter. It has a dominant and natural monopoly position in a booming industry. That was true before TomTom made the offer for Tele Atlas, and even more so after that. As a side note, the analyst April Horace of Janco Partner wrote in an Equity Research report on NVT dated August 1, 2007 “We Think NVT Has the Opportunity to Be the Next RIMM”, which rose to about 256 from 76 in the past 12 months (without considering the 2 for 1 split). With all the background information in mind, almost every investor has been puzzled why on earth the NVT executives and the BOD want to give up their independence and sell the company so anxiously in a bullish market environment - even without premium at all!
In that regard, the NVT management team owes an acceptable explanation to the investment community.
Disclosure: Author has a long position in NVT