Attention, investors! The moment you've all been waiting for has arrived. Garmin
Not that the news was bad. Revenues up 79%, profits up 57%, and guidance raised -- all that was pretty good news. The "bad" news that has the stock trading down 9% as of this writing? Garmin just outbid Euro-rival TomTom by 15% in an effort to swipe its data provider, Tele Atlas.
At first glance, the why of this seems obvious: Earlier this month, Nokia
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How high is too high?
Garmin investors' fear is palpable, and understandable. Tele Atlas is not profitable, so to compare the two mapmaker deals, we're forced to use price-to-sales comparisons. By that metric, Garmin's 15% "premium" to TomTom's offer for Tele Atlas looks positively stingy at 8.1 times trailing sales - vs. the 11.8x multiple that Nokia is anteing up for Navteq. All the pieces seem to be in place for a bidding war between Garmin and TomTom that could push Tele Atlas's purchase price to $4.8 billion, or beyond.
But here's the kicker. I don't think Garmin actually wants to own Tele Atlas, for three reasons.
First, Garmin has always considered Navteq its preferred data provider (Garmin only began using Tele Atlas, and only for Singapore and Malaysia maps, in May 2007). Buying Tele Atlas would almost certainly entail switching to Tele Atlas data across the board and involve innumerable headaches for Garmin's poor techies.
Second, I believe Garmin is too smart to overpay for Tele Atlas. At an 11.8x sales multiple, Garmin would be outbidding TomTom by 65%. Ridiculous. On the other hand, I wouldn't put it past Garmin's savvy strategizers to force archrival TomTom to overpay in order to hang on to its preferred provider. Stretching a rival's finances to the breaking point? That's just good business.
And the third reason? Motley Fool Stock Advisor analyst Nick Kapur argues that Garmin doesn't need to own a map company at all, that its data supply will remain intact regardless of who owns the mapmakers. Stock Advisor members can click here for the Fool story. If you're not yet a member, take a free trial of the service and find out why Garmin doesn't need Tele Atlas.