Global Positioning System (GPS) based navigation devices are increasingly becoming must-have gadgets for car owners, cyclists and even runners. But they would be little more decoration for mere mortals to whom latitudes and longitudes are just numbers too complicated to decipher. It is the digitised maps loaded into these cell phone-sized devices that keep most users from getting lost.

Little wonder that European personal navigation device maker TomTom recently announced that it would buy Tele Atlas, the company that supplies most of its mapping data, for $2.8 billion (€2 billion) in cash and debt. It will offer Tele Atlas shareholders €21.25 ($29.35) per share. The offer represents a 28 per cent premium to Tele Atlas'' closing price on Friday 20 July, and has the backing of both boards. Tele Atlas has about €200 million ($276 million) cash on its balance sheet.

Shares shoot up
Tele Atlas shares were up €5.72 ($7.90) or 35 per cent at €22.27 ($30.76) per share in Amsterdam, suggesting that investors are expecting a competing bid. TomTom shares were up €4.08 ($5.64) or 10per cent at €45.06 ($62.24). It is entitled to a €20 million ($27.63 million) breakup fee if the Tele Atlas board recommends a competing offer.

The acquisition may well transform the navigation device market. Here is an alliance of two underdogs that may well turn the business in a new direction. Perhaps Navteq, the world''s leading provider of geographical information systems, will feel the biggest impact. A price war that was brewing between Tele Atlas and Navteq will probably blow over. Tele Atlas has been making inroads against its larger competitor recently, and snatched carmaker BMW as a customer from Navteq. As a result, Navteq was expected to drop prices but, if TomTom buys Tele Atlas, that may no longer be necessary.

Market mover
Apart from TomTom, Tele Atlas has deals with celklphone giants Qualcomm and Nokia Corp. Garmin, Google, Yahoo and AOL''s MapQuest mostly use Navteq. But the larger players take at least some information from both. Analysts say they have an interest in ensuring that neither Navteq nor Tele Atlas become too dominant in geo-mapping. But this may now have to change.

For years, companies like TomTom and its larger rivals Garmin-the world''s leading navigation device maker-and Magellan, have relied on companies like Tele Atlas or Navteq for constantly updated and accurate street maps, making which is a highly labour-intensive business. It has meant sales of €264 million ($364 million) for Tele Atlas and $581 million (€421 million) for Navteq last year.

Industry watchers have predicted that the number of operating personal navigation devices (PNDs) will zoom to 65.1 million in 2012 from 19.8 million in 2006. Given the big boom ahead, the main competitor to Tele Atlas, Chicago-based Navteq, may get unexpected business from device makers that don''t want to buy from Tele Atlas, because it is owned by rival TomTom. On the other hand, Navteq might soon find itself as the target of an acquisition bid.

In the latter case, leading GPS maker Garmin, with $1.8 billion in 2006 sales, is the most likely potential acquirer, given its intense rivalry with TomTom and the fact that it buys about 99 per cent of its maps from Navteq. But Garmin has only $573 million in cash, and would have to either take on considerable amounts of debt to raise the $6 billion to $7 billion price tag to put Navteq in the bag.

Chinese accounting
But Taiwanese electronics manufacturer MiTAC, which launched its Mio line of personal navigation devices last year and immediately established a beachhead in an intensely competitive market sees things differently, not least because it is Tele Atlas'' second-largest customer after TomTom. MiTAC says its relationship with Tele Atlas won''t change after the merger, as Mio''s gains in market share in North America will remain unaffected by TomTom''s agreement with Tele Atlas.

Notwithstanding Chinese inscrutability, watch this space for developments in this field. There are likely to be many in the months to come.