Is Garmin lost? Based on the fact that the stock price has been heading due south for the past few weeks -- to the tune of about 28% -- it would appear that the answer to that question is yes. However, before you steer clear of the country's leading provider of in-car and handheld navigational devices you might want to dig a little deeper into the rationale behind the recent decline.
First and foremost, Garmin now finds itself in a bidding war with its European rival TomTom for Tele Atlas, which provides map data for portable navigational devices. Just yesterday, TomTom upped its original offer for Tele Atlas to about $4.3 billion, eclipsing Garmin's surprise offer by a handsome 22%. Garmin must now either cough up over $5 bln for Tele Atlas within the next few days, or see another top mapping company fall into the hands of a competitor. Nokia acquired Navteq earlier this year for more than $8 billion.
Obviously, if the company ends up paying more for its hostile run at Tele Atlas it would depress the price of the stock further as investors will question how much the purchase willl dilute future earnings growth. There's also the problem of integration should Garmin navigate its way to victory, as the company currently relies primarily on Navteq for its mapping data. The switch to Tele Atlas would not only take time, but the execution risk is very high. I think this is what is meant by the phrase "winning ugly." If Garmin decides to raise its bid and wins the battle to acquire Tele Atlas, shareholders might be in for a lot more ugly over the next year.
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