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Mike Dobson of TeleMapics on Local Search and All Things Geospatial

Garmin, TeleAtlas, TomTom – What could happen?

November 1st, 2007 by MDob

You know the markets are turbulent, when you have to check the financial news before you blog – to make sure no new bidders have entered the fray. So, it is my sense that the financial community does not yet think the battle is done. What could happen with TeleAtlas?

Bidding war – maybe, but Garmin has the better financial position and would win a bidding war – if it has the resolve (which it said it did in yesterday’s Earnings Conference Call). Garmin is three-plus times the size of TomTom and implied that it has the financing to prevail against TomTom in a bidding war.

Garmin did not make the logical choice to buy its current supplier (Navteq) and its bid for TeleAtlas reveals something of its strategy. It would seem that the Navteq price was too high and Garmin was not sure that it could counter-bid Nokia with success. Instead, it opted for the “lower-priced spread” (TeleAtlas), even though this means swapping out the map databases on almost all of its PNDs and settling its supply contracts with Navteq. From an economic perspective this means that Garmin was sure that it could win a competitive bidding war for TeleAtlas with TomTom. Whether it could win a bidding war with a financially more able player remains unclear, but, at this time, it is also difficult to spot likely candidates.

TomTom and Garmin could partner and avoid a bidding war. We think the two companies unlikely to be able to manage a joint venture due to different perspectives on developmental needs and product innovations. It is likely that they would l have to create in-house units for custom data, which would leave them where they were pre-acquisition announcements.

Joint Venture?
Some have suggested that the companies could “split” TeleAtlas by having its European component create European data to TomTom’s specification, while its North American arm (formerly Etak and GDT) could be directed by Garmin. Each company would use the other company’s specified data outside of their “home markets”.

While this scenario is possible, we doubt that it is likely. Garmin has spent quite a bit of money buying-up its European distributors and is intent on building distribution and success in Europe. TomTom’s management has repeatedly announced its intent to increase market share in North America. Both companies’ strategies for growth in their competitor’s territory would be impeded, if they were using data known to be specified by the other company. In addition, integrating databases that had fundamental differences would be an additional cost that would penalize each company in the other’s home market. Next, doing so could also penalize all other users of these joint-databases and drive more companies to Navteq.

Perhaps the most important issue is that both companies have announced their intent to augment TeleAtlas’s data handling capabilities with User Generated Content. If Garmin used it resources to augment TeleAtlas North American databases with its branded UGC and TomTom did the same in Europe with MapShare, then each company would have another roadblock to overcome in markets that they are strategically dedicated to growing. We doubt that either company would find this scenario palatable.

For the reasons above and others, we doubt that companies would form a venture to jointly own TeleAtlas, but sometimes business creates the oddest bedfellows.

New buyer for TeleAtlas or Navteq?

Possibly for TeleAtlas. The only news that was included in TomTom’s bid for TeleAtlas was that the buyer was TeleAtlas. Other companies had taken a look at TeleAtlas over the last year and decided that they did not want to go forward with the discussions. In a similar situation, major players had an opportunity to take a look at Navteq after it was approached by Nokia, but before the deal was announced and those that looked decided to take a pass.

Deferring on an $8 billion price tag for Navteq is understandable (approximately 40x earnings). At $2-3 billion TeleAtlas appears a bargain, although the company does not generate the type of revenues or profits accruing to Navteq. If companies were not interested in TeleAtlas from a strategic perspective before the bidding war (as we noted above several took a look), why would they be interested now?

We have to admit that we are stumped. Garmin’s move on TeleAtlas was a recent strategy for the company, one it admitted in yesterday’s conference call that it did not have until the potential acquisition of the map supply duopoly caused them to rethink their position. Our assumption, that Garmin’s move is more of a response to the punishment its stock price took as a result of its inaction than a response to a bona fides strategic threat, remains unchanged. But this abrupt change of strategy by Garmin raises the question “Have other companies rethought their positions on the navigation database market?”

News at 11.

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Posted in Garmin, Mapping, Navteq, Nokia, Personal Navigation, TeleAtlas, TomTom, User Generated Content

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