10/1/2007 10:26:52 AM

A visitor speaks on his phone at the Nokia stand during the 3GSM World Congress in Barcelona February 13, 2007. Nokia said on Monday it will offer $8.1 billion for U.S. based digital map supplier Navteq in one of its largest takeovers ever, but its shares fell as analysts dubbed the deal "expensive". REUTERS/Gustau Nacarino

By Tarmo Virki(/a)

HELSINKI(/a) (Reuters(/a)) - Nokia(/a) (NOK1V.HE) said on Monday it will offer $8.1 billion for U.S.(/a)-based digital map supplier Navteq (NVT.N) in its largest takeover ever, but its shares dropped because investors regarded the deal as expensive.

The agreed deal would give the world's top cellphone maker -- which is looking for new revenue sources as the cellphone industry matures -- a stronghold in the navigation business, one of the fastest growing segments in the technology industry.

"First and foremost I want to emphasize this is about growth," Nokia(/a)'s Chief Financial Officer Rick Simonson(/a) told a conference call with analysts.

Nokia(/a) shares fell more than 4 percent on the news, but later recovered and were 2.2 percent lower at 26.07 euros by 11:14 a.m. EDT. Shares in Navteq were 1.3 percent lower at $76.99, just below Nokia(/a)'s offer of $78 per share.

Shares in Garmin (GRMN.O), the world's largest maker of navigation devices, fell more than 13 percent as analysts had expected it would be buying Navteq.

But Navteq said Nokia(/a) made the best offer for the company.

Analysts said the deal would be good for Nokia(/a) in the long term, but the company is likely to be paying too much.

Nokia(/a)'s offer values Navteq at 8.6 times 2008 sales and 24.5 times 2008 earnings before interest, tax, depreciation and amortization (EBITDA), according to Reuters Estimates(/a).

"It is very expensive. The stock is currently about 50 times the forward earnings, which is fairly pricey," said analyst Richard Windsor(/a) from Nomura.

TomTom(/a) (TOM2.AS), the world's top maker of car navigation devices, offered 5.2 times 2008 sales and 20.9 times EBITDA in July for Navteq's only big rival, Tele Atlas (TA.AS).

MAPS KEY

Nokia(/a) said it sees maps as a cornerstone of its new Internet services strategy, but the deal will also put it into head-to-head competition with mapping products of Internet giants Google(/a) (GOOG.O) and Yahoo!(/a) (YHOO.O), with which Nokia(/a) has several partnership agreements.

"Nokia(/a) is betting big on Web 2.0 applications. The sheer scale of this acquisition means it is about much more than just turn-by-turn navigation," said Ben Wood(/a), head of research at consultancy CCS.

Nokia(/a) said it would finance around half of the deal with cash and rest with debt. It had 8.3 billion euros in cash and other liquid assets at end-June.

Nokia(/a) said the acquisition would not impact its large share buy-back program, or its future cash distribution strategy in terms of dividends and share buybacks.

Nokia(/a) said the takeover would weigh on its 2008 and 2009 reported earnings, but be slightly accretive in 2009.

TomTom(/a) shares were 4.6 percent higher at 57 euros, while Tele Atlas shares were 6 percent higher at 21.58 euros.

"Navteq has been shopping around and found Nokia(/a)'s offer to be the best, so a counterbid here seems unlikely. That also makes it likely that the merger between TomTom(/a) and Tele Atlas is going ahead," said Fortis(/a) analyst Felix Oberdorfer(/a).

Nokia(/a) bought into the navigation industry last year when it acquired German software firm Gate5, which uses map data from providers like Tele Atlas and Navteq.

Nokia(/a) credit default swaps were two basis points wider at 22.5 basis points after the announcement, according to Deutsche Bank(/a) prices, meaning it costs 22,500 euros a year to insure 10 million euros of Nokia(/a) debt against default.

(Additional reporting by Sami Torma(/a) and Agnieszka Flak(/a) in Helsinki(/a), Niclas Mika(/a) in Amsterdam(/a) and Richard Barley(/a) in London(/a))