AMSTERDAM, Nov 7 (Reuters) Dutch navigation device maker TomTom raised its bid for digital map maker Tele Atlas by a hefty 41 percent, outbidding rival Garmin, and said it will buy a 28 percent stake in Tele Atlas.
TomTom sweetened its proposed bid to 30 euros per share on Wednesday, above the 24.50 euros offered by U.S. market leader Garmin last week, and valuing Tele Atlas at about 2.9 billion euros (.2 billion).
Analysts said TomTom's move to buy more than a quarter of Tele Atlas's shares, which it can keep even in case of a higher competing bid, could cause Garmin headaches.
TomTom shares initially dropped, but by 1051 GMT had stabilised at around 56.75 euros per share, up 0.4 percent.
Tele Atlas shares rose above TomTom's new offer price to trade up 18 percent at 31.85 euros, signalling investors believe Garmin may put forward an even higher offer.
European market leader TomTom is Garmin's top rival. Buying Tele Atlas would reduce its dependence on selling hardware and put it at the heart of the fast-growing industry by controlling one of just two global digital map makers.
TomTom kicked off the consolidation in July by offering to buy Tele Atlas, but a struggle for the Dutch map maker had been predicted after U.S.-based Navteq, Tele Atlas's only global competitor, agreed to an .1 billion takeover by cellphone maker Nokia.
Analysts said TomTom's proposed offer was not necessarily a knock-out bid.
''Garmin could go higher. However, if it did so, it would very likely do a 10 percent capital increase. TomTom also would need a capital increase if it wanted to bid a higher price,'' Sal. Oppenheim analyst Nicolas von Stackelberg said.
Neither Tele Atlas nor Garmin would comment.
STEEP PRICE Rabo Securities analyst Frits de Vries agreed Garmin could raise its bid but added it would pay a steep price with TomTom's bid already worth about 41 times Tele Atlas's 2007 adjusted core earnings.
By comparison, Nokia's offer -- seen as a full price at the time -- valued Navteq at 8.6 times 2008 sales and 24.5 times 2008 earnings before interest, tax, depreciation and amortisation (EBITDA), according to Reuters Estimates.
TomTom said it would buy Tele Atlas shares from certain shareholders at the 30 euro offer price immediately.
The agreement with the shareholders includes provisions in case TomTom's takeover offer is not completed or TomTom raises its offer price again, but a spokesman said it would not force TomTom to sell the shares in case of a higher competing bid.
''They're ours,'' the spokesman said.
ING analyst Marcel Achterberg said TomTom had created a strong position with a lot of leverage, but cautioned that Garmin also appeared determined to buy Tele Atlas.
''They can pay more than TomTom can. The only thing that TomTom can do is to make it as difficult and expensive as possible,'' Achterberg said.
TomTom Chief Executive Harold Goddijn downplayed the effect on his company should it lose the battle for Tele Atlas.
''Strictly speaking it's not necessary (to buy Tele Atlas).
We're a great company ... everything we do is not dependent on the map vendor,'' Goddijn told Reuters in an interview.
''I agree that to move forward in this business, you need to do more than just making hardware, but we have been doing that for two years now ... by acquiring Tele Atlas we could spread our wings into areas where we're currently not playing.'' Goldman Sachs, ABN AMRO and Rabobank are providing committed financing for the Tele Atlas takeover, TomTom said.
TomTom said it expected Tele Atlas's supervisory and management boards to support and recommend its new bid.
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