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Mobile phone giant Nokia Oyj has decided to enter the navigation software market by acquiring the sector's top player, Navteq Corp., for $8.1 billion in cash, or about $7.7 billion net of Navteq's existing cash balance. Under terms of the transaction announced Monday, Oct. 1, Espoo, Finland-based Nokia will pay $78 for each share of Navteq, including outstanding options. Nokia plans to finance the deal through cash and debt, and it said it has secured a commitment on the debt. Both companies' boards have approved the transaction. Nokia president and CEO Olli-Pekka Kallasvuo said in a conference call that navigation services is already a big-growth business but that the industry is just at the "tip of the iceberg" in terms of entering the wireless market. "Location-based services are only now just starting to enter the 1 billion-plus-unit-a-year mobile-devices market," he said. "We believe the combination of Nokia and Navteq will create a strong global leader in the fast-growing location-based services market." Analysts pegged the purchase price at about 36 times Navteq's Ebitda for the past 12 months. Some observed that Nokia paid a high price, but that the deal was strategically necessary for the handset maker. "As an add-on personal location service for Nokia's handset, Navteq could not possibly be worth the price," analyst Jim Kelleher of Argus Research Corp. wrote in a research note Monday. "But as the linchpin of Nokia's plans to position itself as a provider of proprietary Internet services, Navteq could prove to be vital. The reality probably falls somewhere in the middle." To that end, Kallasvuo described location-based services as the cornerstone of Nokia's Internet services strategy. "Overall the market for GPS is growing phenomenally, and I think this is obviously a positive for Navteq," said Ingrid Ebeling, an analyst at JMP Securities LLC. In a press statement, Navteq chairman Christopher Galvin, former CEO of Motorola Inc., said Chicago-based Navteq approached other potential buyers for his company but determined that Nokia's proposal "was the best opportunity available to maximize value" for stockholders. Nokia plans to operate Navteq's map data as an independent entity. Judson Green, Navteq president and CEO, will continue to run the division and will report to Kallasvuo. The companies expect to close the deal in the first quarter of 2008. "I am confident that each of our two companies will be able to help the other achieve its goals more rapidly than either could have done separately, and we look forward to a bright new future together," Green said during the conference call. Nokia said it expects the transaction will not affect its share buybacks under a current mandate or its future cash distribution strategy in dividends and share buybacks. It also anticipates the deal to dilute its earnings in 2008 and 2009 on a reported basis. On a cash basis, Nokia expects the transaction to be slightly dilutive in 2008 and slightly accretive in 2009. Nokia's move to buy Navteq was in reaction to the $2.85 billion acquisition of Navteq rival Tele Atlas NV by TomTom NV in July, sources said. Navteq holds roughly a 60% share of the navigation technology market, supplying digital maps to automakers, Internet portals such as Google Inc. and mobile device makers. Tele Atlas holds about a 40% market share. Monday's deal took out the last major pure-play provider of location-based services. "They [Nokia] wanted to have a closer relationship with Navteq and couldn't afford to have them taken out by someone else," said Mark McKechnie, a telecom equipment analyst at American Technology Research Inc. "When Tele Atlas got taken, it was a matter of time 'til Navteq got taken out." Galvin said the price Nokia is to pay represents a 34% premium to Navteq's share price a month ago, before his company's shares surged on takeover speculation. In August, Nokia also launched Ovi, its new Internet services portal, which enables customers to access social networks and other content, as well as acting as a gateway to Nokia services. Under the Ovi umbrella is the Nokia Maps navigation service, which offers maps, city guides and other services directly to compatible mobile devices. Nokia said it aims to bring more Internet-based services to Ovi in the coming months. Navteq's shares have skyrocketed over the past two months following the Tele Atlas transaction, as investors speculated that Navteq may be next on the block. Founded in 1985, Navteq last year earned net income of $110 million on revenue of $582 million. It employs about 3,000 people in 168 offices in 30 countries, and counts as its customers Ford Motor Co., Chrysler LLC and Mercedes-Benz AG, among many others. Navteq shares dropped almost 2% in trading to close at $76.45 following Monday's news. Navteq marks the largest of several recent acquisitions by Nokia over the past two years. In September it announced it was acquiring Enpocket, a provider of mobile advertising technology, for an undisclosed sum, and in July, it snapped up U.S. media company Twango Inc., a provider of media-sharing products for organizing and sharing photos and other personal media, also for an undisclosed amount. In 2006, Nokia acquired Seattle-based digital music catalog company Loudeye for $60 million and the network deployment business of LCC International Inc., for an undisclosed sum. In November 2006, Navteq acquired Traffic.com Inc., a provider of real-time traffic reports, for $179 million in cash and stock.  Deal Video
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