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Mike Dobson of TeleMapics on Local Search and All Things Geospatial

Nokia and Navteq – Counter Offers and Counter-strategies.

October 2nd, 2007 by MDob

When we reviewed the TomTom-TeleAtlas deal, we noted that the break-up fee, if TeleAtlas should partner with another company, was in the area of $20 million. While reading the proxy for the Nokia-Navteq deal, I noticed that the break-up fee was $250 million! Since the purchase price is already at the nose-bleed level for most companies, it is unlikely that anyone will match the bid, add the break-up fee and put a topper on it that would be attractive. Since the deal requires each party to handle its own deal-related expenses, it is likely that litigation and other costs related to breaking-up (including the fee) would require a bid of at least $9 billion to get Navteq even slightly interested. I doubt that you will see this happen.

I have spoken to a number of people about the Nokia deal and found an interesting split. About half felt that the company was overpaying. The other half marveled that geographic content could command such a high price. Many of the half who felt that Nokia was overpaying had ties, at least at one time, to TeleAtlas and thought that the price the company was receiving from TomTom was too low. In turn, the shareholders must have felt the same way, since they bid the share price above the share price that TomTom is paying in the tender offer (which starts today). While many feel that a counter-offer for TeleAtlas is in the wings, I don’t. Although, I would not be surprised to see someone bid for the combined entity once the deal closes. Think Qualcomm or Hughes.

Also, I am not in the camp that feels that Nokia is overpaying. Navteq is a better run company than TeleAtlas, leads the in-car navigation market and is an enormously profitable business, something that has eluded TeleAtlas. Next, Nokia is willing to pay a premium for the business because it believes that IT is the company most able the leverage Navteq to greater success and do the same for itself in the process.

If Nokia’s entire handset line were provisioned with navigation data and services, it would owe an independent Navteq a bundle in licensing fees. There is no other company that can benefit as much as Nokia from the acquisition of Navteq. This does not mean that someone might not be interested in raising the bid and paying more, only that the price Nokia is paying is reasonable based on their beliefs about the time-value of money.

Next, poor Garmin is getting the daylights beat out of it in the stock market. Everyone else seems to feel that they should have made a run at Navteq. If you read the proxy, you will find out that Navteq had set up a “Data Room”, which was specifically mentioned in the agreement (i.e. -close it immediately and do not let anyone else look). For those of you unfamiliar with the term, a data room is a repository you set-up when you are interested in selling your company. All documents relating to the material facts about the company are placed in this room. The documents are available for examination by companies that might be interested in an acquisition.

Navteq did not get a bid from Nokia and swoon. Instead, they spent the time and effort to determine that there was no bidder more able and interested than Nokia.

In other words, it is highly likely that Garmin took a look and decided that it could do a lot of innovative product development for $8 billion. We suspect that Garmin felt that the debt load they would have to assume to fund a deal of this size was simply too much for them to “chew”.

In addition, at the price that Nokia is paying for Navteq, it would make no sense for it to restrict data licensing revenues by restricting Navteq’s customer base. Nokia will allow Navteq to continue to supply the customers it has today and surely hopes that Navteq will have even more customers tomorrow. Garmin is not going to be cut-off from its data supply. Might Garmin have to pay more tomorrow than today? Perhaps, but, in large part, that will depend on the type of commitment that it is willing to make to Navteq.

Finally, it is likely that the price being paid for Navteq will spur several new competitors to enter the market. Vacuums in the business world, either real or perceived, are always filled and this will be no exception. Just last week AND announced that it was licensing a navigation database for the Benelux and would have more announcements in the future. Whether Nokia will be interested in supporting Navteq’s ADAS database efforts is, I think, a potential dilemma for the automobile industry. Perhaps that too will spur other competitors!

Perhaps you have heard the “hard to believe” rumor that Pitney Bowes acquired MapInfo to assist in building a parcel level database of the US? If so, they acquired the wrong company. But with a little elbow grease and a lot of money, all things are possible…well at least most things involving mapping! But really, paying for all that brand equity and then changing its name to Pitney Bowes software. Wow, a smart addressograph!

I’ve taken up too much of you time once again. Thanks for reading. Let’s pick up our series about UGC next time, especially with Nokia claiming 900,000,000 users that it could contribute to updating Navteq’s map and POI databases. (Interesting claim but not quite on the money).

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Posted in Data Sources, Geospatial, MapInfo, Navteq, Nokia, Personal Navigation, TeleAtlas, TomTom

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