TomTom, Garmin Square Off Over Tele Atlas

AMSTERDAM, THE NETHERLANDS — TomTom and Garmin locked horns last week in a heated bidding war over who will own the single remaining independent GPS map maker, Tele Atlas.

Garmin announced it plans to outbid TomTom by 15 percent with an offer to buy Tele Atlas for $3.3 billion dollars. As TWICE went to press, the Tele Atlas board accepted Garmin's intended offer and said TomTom had five days to respond, according to reports by MarketWatch and Thomson Financial.

All eyes are now on TomTom in what has become a fight for ownership of the key ingredient in GPS — the digital maps.

TomTom touched off that race in July when it placed a 2 billion euro bid for Tele Atlas, one of only two GPS map makers, which was quickly followed by a $8 billion offer by Nokia to buy the other map maker, Navteq.

Maps are critical to the exploding personal navigation (PND) market because they account for up to 20 percent of the wholesale cost of a PND, said industry members, and because "maps are the key ingredient that makes these devices work," said Garmin.

Garmin openly said its Tele Atlas bid, expected to be formalized by Dec. 4, created a bidding war over map ownership. Dr. Min Kao, chairman/CEO of Garmin, said, "Historically, Garmin believed that the independent map [model] served our industry well. However, in absence of this independence, Garmin must execute its obligation to provide market leadership."

Another Garmin executive clarified, "Ninety days ago the industry was quite different." He said Garmin needs an ownership stake in a map maker "in order to be able to define the maps of the future."

TomTom and Tele Atlas did not respond to TWICE inquiries.

Garmin chief financial officer Kevin Rauckman said, "We can't speculate" on a counter offer by TomTom, but he added, "Given the 15 percent premium on the existing offer out there, we feel it's a compelling offer."

Peter Friedland of Soliel Equity Research said, "We believe the clear loser here is TomTom, as the company will either be forced to raise its offer, creating more dilution, or the TomTom story will return to a pure-play PND hardware vendor."

Although Garmin uses mainly Navteq maps, it said that it chose to buy Tele Atlas over Navteq as it made the more sense financially. Garmin said it would require 12 to 24 months to convert to Tele Atlas maps.

Both TomTom and Garmin said the acquisition of Tele Atlas would lead to greater map accuracy. Garmin said it would also allow more realistic 3D map views, improved map coverage and search capabilities, and more intuitive user interfaces.

Garmin also said that it now has a base of 25 million users and is looking into creating user-generated, real-time content.

Several analysts believe that the future owner of Tele Atlas, be it Garmin or TomTom, will become the takeover target of Microsoft and Google, which are entering the location-based services market.

Last month, iSuppli said Google needs maps to become a key provider of location-based services, particularly as it seeks to send advertising to cellular phones.

Microsoft, to a lesser extent, would also gain from such a deal, said iSuppli.