Nokia Nabs Navteq for $8B

Nokia Corp. (NYSE: NOK) announced an agreement to buy digital map provider Navteq Corp. (NYSE: NVT) for $8.1 billion, in one of the device maker's largest acquisitions. (See Nokia Acquires Navteq.)

The deal is the handset maker's boldest and most expensive move into navigation and location-based services. And the price tag shows just how serious Nokia is about providing mobile Internet services under its new services brand, Ovi. (See Nokia Stakes Claim on Services, Nokia Stakes Claim on Services, and Nokia Buys gate5.)

Nokia has agreed to pay $78 in cash per Navteq share, including outstanding options, which brings the total purchase price to $8.1 billion, or $7.7 billion net of Navteq's existing cash balance. Nokia says it will fund 50 percent of the acquisition with cash and 50 percent with debt.

But at least one analyst, Richard Windsor at Nomura International is not convinced of Nokia's intentions for Navteq.

"This is an expensive acquisition that we think is more about long-term control and inhibiting competition than about a financial investment in a growing asset," says Windsor. "If OVI is successful then this acquisition could contribute a lot of value to Nokia but we struggle to believe that it will earn its keep in the short-term."

Navteq and Tele Atlas NV are the two main companies that provide all the base mapping and navigation data, including driving instructions, that enable most in-car navigation and location-based services. TomTom International BV , which makes car navigation devices, made an offer to acquire TeleAtlas in July.

With Navteq, Nokia will have more control over the cost of acquiring map and navigation data, because previously, Nokia would have had to license that data from Navteq or TeleAtlas, explains Gabriel Brown, chief analyst at Unstrung Insider and author of the report, "Mobile Location Services: Keys to Mass-Market Success."

"Now that they own Navteq, Nokia can get much more creative on the business model for digital mapping, personal navigation, and location-based services," says Brown.

Another analyst says Nokia risks damaging relationships with its mobile operator customers by tying its own Internet services to its mobile devices, which will drive them to source handsets from other providers.

"We fear that mobile operators may react less than enthusiastically to news that their largest supplier of handsets is venturing into content provision on such a grand scale - it may evoke a diversification of their procurement strategies," says Dresdner Kleinwort analyst Per Lindberg in a research note today.

The acquisition is in line with Nokia's new mobile Internet services strategy. In June, the company said it expected to make acquisitions to gain competencies in Internet services. (See Nokia Streamlines Structure.)

Navteq won't be Nokia's first foray into navigation and location-based services. In August last year, the Finnish device maker bought German navigation software firm gate5 AG .

And Nokia is already offering navigation services on the new N95. The Nokia Maps navigation service, which comes on the new Nokia N95, is one of the first services in the Ovi suite of Internet services, along with a music store and gaming service.

Nokia's share price was down nearly 2 percent to €26.21 (US$37.31) in late afternoon trading.

— Michelle Donegan, European Editor, Unstrung