Garmin Ltd. (NASDAQ: GRMN) may still be the leader in its space in the U.S., but the company has become very ‘yesteryear’ for investors.  The company recently performed much ‘less-worse’ than expectations and shares soared after earnings, but then itreceived a key analyst downgrade from Goldman Sachs.  Now the company is ready to throw in an acquisition into the mix.  All the reports from the weekend and early this week have Garmin making a cash bid to acquire a troubled and much smaller Raymarine, a GPS navigation solution system maker for the recreational boating and light commercial marine markets.  Because of the growing competition in this GPS space, we wanted to see if this would be a deal brought by need or brought by convenience.

The Portsmouth, UK-based company has been said to be in search of a partner after warning earlier this summer that it was close to the operational limits of its bank credit facilities.  If you think that Garmin has fallen from grace as a stock, it pails to the drop seen here.  Raymarine shares in London were north of 400 pence in 2007 and briefly hit 500 pence.  Today’s level after a 7% gain is a whopping 17.70 pence.  That comes to a loss of more than 95%.

The Sunday Times originally had the story, but the issues here go above and beyond just an international merger.  Garmin is exponentially larger in size  and the need for anything ‘friendly’ might not be present.  While Garmin is used on some boats, this would broaden out the company’s boat and marine offerings.  Those markets are in the toilet right now, but that is the time for a larger company to buy up smaller rivals.

Raymarine may need to raise capital, find a new partner, or just take a buyout.   Falling outside of credit facilities is something that US investors and British investors do not exactly greet with any cheers.

It would be very easy to pan any notion of the merger. Frankly, there is no point on panning a buyout of Raymarine.  Garmin has been under pressure and the new Android and GPS systems are going to give the company deeper competition from free offerings and from lower-priced offerings.  Apple Inc. (NASDAQ: AAPL) either has or is soon to have an application from Tom Tom for its iPhone.  Verizon Communications Inc. (NYSE: VZ) now offers many of its mobile phones the VZ Navigator service for $9.99 per month or $19.99 per month for the global edition.

Google Inc. (NASDAQ: GOOG) is encroaching in the GPS space by triangulating a cellphone’s position via the cell towers.  So far that has been limited in reception and ratings, but Google is far from giving up there for its Google Maps and its AdSense programs to have another aspect of business.  Some GPS-sector contacts are noting that Google’s entrance here is effectively driving the costs down in a race to zero.   Whether that market can be solely ad-supported is yet to be determined.

Garmin’s ‘nuvifone’ is now available in certain Asian markets but is not yet out in the U.S.  We have read that AT&T Inc. (NYSE: T) will offer the phone, although our prior information was that the ‘nuvifone’ in the U.S. would be available from more than one carrier.  One of the key complicating issues in this space is also that while  companies are competing, they are frequently using each others’ technology or technology from the same third party providers.

Raymarine is simply a small strategic deal that also acts as a bit of a defensive merger as well.  It makes for only a small dent in what could be at risk as its overall model is concerned.  But the deal keeps a competitor from getting that much further in and would at least help Garmin to get a little better foothold in the marine market.

JON C. OGG
AUGUST 18, 2009

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