By William Patalon III
Money Morning/The Money Map Report
European Union antitrust regulators have launched an in-depth investigation into Nokia Corp.'s (NOK) proposal to buy U.S. digital mapmaker Navteq Corp. (NAVT), expressing concerns the $8.1 billion deal could stifle competition in the red-hot market for navigation products and services.
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The U.S. Federal Trade Commission won approval of the deal in December. But the FTC's European counterpart – the European Commission – has opted to conduct a detailed review of the deal, noting that Navteq is one of only two freestanding companies that produce digital maps – a critical ingredient for the navigation services that can be distributed by such devices as cell phones or global-positioning systems (GPS).
"The [European] Commission's initial market investigation has indicated that the proposed merger raises serious doubts with regards to … competition concerns," the commission announced.
Just because the EC opted to open the investigation doesn't mean its findings have been "prejudged," it noted. The commission now has until Aug. 8 to render a final decision on whether the proposed buyout would "significantly impede effective competition within the European Economic Area or a significant part of it," the antitrust regulator of the 27-nation European Union said Friday.
As part of the investigation, the EC will attempt to make several key assessments:
- Whether the deal will lead to an increase in the price of navigable digital maps for other companies that are trying to offer competitive navigation services on wireless phone handsets or other devices.
- Whether the deal will limit the access of third-party companies to these maps.
- And whether consumers will be "harmed" – have to pay more – as a result of the deal.
Nokia's proposed buyout of Navteq raises many of the same issues European regulators are concerned about as a result of the proposed acquisition of Tele Atlas NV (PINK: TLATF) by TomTom NV, a Dutch company that makes portable GPS navigation devices and sells navigation software for mobile phones, the commission said Friday.
The proposed TomTom/Tele Atlas transaction also is under review by the commission, which earlier on Friday extended the deadline for its decision on that deal by 10 days. The new deadline is May 30.
The commission and both companies made the decision, EU spokesman Jonathan Todd told Bloomberg News in an interview on Friday.
The commission announced its intent to review the Nokia/Navteq deal later the same day.
Booming Sales Open up New Markets
Although Nokia already is the world's No. 1 seller of wireless handsets, the company is looking for new sources of revenue because the cell phone industry is rapidly maturing. With the added ability to offer navigation services, Nokia could give itself a strong position in this emergent sector – which is one of the fastest-growing fields in the high-tech sector.
That potential benefit wasn't lost on other industry players.
Once Nokia struck its deal with Navteq, Garmin Ltd. (GRMN), the largest U.S. maker of satellite-navigation devices, launched a $3.4 billion hostile bid for Tele Atlas, which already had agreed to be acquired by TomTom for $2.8 billion.
When TomTom boosted its bid to $4.2 billion and Tele Atlas accepted the offer outright, Garmin raised the white flag and dropped out of the bidding battle.
Garmin – a Wall Street darling for much of the past several years – has subsequently seen its shares plunge from their highs, as investors worried about how the loss of the deal might impact future earnings.
Garmin's shares, which traded as high as $125.68 each last year, closed Friday at $56.08.
According to recent reports, however, Garmin appears to be faring well from a competitive standpoint. Garmin sold more personal navigation devices worldwide than any other manufacturer last year, according to research by independent technology market analyst firm.
Just last week, Garmin said it delivered 31 million devices equipped with global positioning systems since the company's inception in 1989. The company delivered more than 12.3 million of the devices last year, the company said in its recent Securities and Exchange Commission (SEC) filing.
"Garmin achieved the worldwide number one spot for mobile navigation devices in 2007 by performing consistently well in Europe, more than doubling its shipment [totals from] 2006 and increasing its market share, while also retaining its clear lead in the booming U.S. market, which grew to represent 34.7% of the total worldwide market in 2007," Chris Jones, a vice president and principal analyst for Canalys, said of the research firm's report. "Garmin had an enviable 47% share in the U.S. [market] in 2007, and the market quadrupled in size."
News and Related Story Notes:
- Bloomberg News:
Nokia's Navteq Acquisition Faces In-Depth EU Probe.
- Bloomberg News:
Tele Atlas Drops on Extended Review of Sale to TomTom.
- Money Morning News:
Garmin Withdraws Tele Atlas Bid; May Become Takeover Target.
- Money Morning News:
GPS-Maker Garmin Sees its Shares Plummet on Profit Worries.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.