SatNav's Fallen King Gets $1 Billion to Play With

(Bloomberg Opinion) -- Any business being hounded by technological disruption usually finds itself at a crossroads where it must choose either to adapt and fight, or manage the decline. It increasingly looks like TomTom NV, once the king of satellite navigation devices, hasn’t decided on either route. Chief executive Harold Goddijn might be considering a third path.

The Dutch company said on Tuesday that it would sell its telematics business – the stuff that brings together wireless tech, cars and sensors – to Bridgestone Corp., the world’s biggest tire-maker, for 910 million euros ($1 billion). Of that, TomTom will return 750 million euros to shareholders.

On the surface, the move smacks of indecision. If TomTom were really managing decline, investors might have expected to get all of the money. If the company were planning to adapt and fight, it would probably want to hold onto more of the cash.

It’s become harder and harder for TomTom to compete in the market for high-definition maps, which are required for the most advanced stages of autonomous driving. Better capitalized companies such as Alphabet Inc. and Apple Inc. are throwing hundreds of millions of dollars at mapping; companies at the cutting edge of self-driving technology, meanwhile, rely on other sensor arrays to understand the environment around a car. In Silicon Valley, TomTom’s offering is seldom considered a viable option.

SatNav's Fallen King Gets $1 Billion to Play With

That the price for the telematics business, which lets companies monitor car performance and data remotely, was at the low end of expectations suggests that TomTom was unable to gin up a bidding war, even though Verizon Corp., Daimler AG and Microsoft Corp. were mooted buyers. Those companies clearly felt the technology wasn’t advanced enough to warrant a big premium.

TomTom’s founders, who include Goddijn, may have another plan in mind. The structure of the deal would make it much easier for them to bid for the 53 percent of the company that they don’t already own. Investors have long moaned that Goddijn viewed quarterly earnings calls as little more than a chore, and suspected he might prefer to take the company private.

Because the capital returns are structured as a so-called “synthetic buyback,” an instrument used to reduce the tax bill by Dutch companies who don’t usually issue a dividend, Goddijn will effectively lower TomTom’s market value to about 1.1 billion euros after the buyback’s completion.

A bid from the co-founders at a 25 percent premium would therefore require about 730 million euros in cash. But take into account the buyback proceeds they’re set to receive, and that leaves less than 400 million euros to find. It should be relatively straightforward to raise that kind of capital from the debt markets, particularly given that TomTom will have almost 350 million euros in cash reserves.

It may well be that Goddijn wants to stick around and fight after all. He might just want to do it away from the scrutiny of the capital markets.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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