TomTom (Buy): Interesting remarks CEO likely to spark speculation
The facts:
In an article by Dutch daily NRC about the future of TomTom and its place in the industry relative to giants like Apple and Google, TomTom CEO is making several interesting statements.
The first one is that TomTom is talking with Apple about an expansion of their agreement including new services.
The second one is that the TomTom founders will not ignore a good offer as they are looking after the interest of all shareholders, "not just aiming to continue to go to work happily every day".
CEO Goddijn is also quoted saying that the Consumer activities ‘blur' the value of the overall company and that when asked whether a spin-off would be a possibility CEO Goddijn says something that can be translated as that he will watch the value closely.
He is then quoted saying that the Business Solutions division could easily stand on its own two legs. He is also saying, when asked about interest from potential buyers, that TomTom has a strategic position and that the acquisition of Waze has certainly put TomTom back in the limelight.
Our analysis:
These are very interesting remarks. If true, it clearly shows that TomTom is thinking about more radical solutions to create value.
Spinning off the Consumer division (as Philips has done) is an interesting option but difficult to do given that the division still covers quite a large chunk of TomTom's map database and overhead costs.
A spin off, regardless of the price it could fetch, would probably result in a TomTom post-transaction that is loss making. It is true, however, that the Consumer activities, especially given IFRS treatment of maps and traffic services, are blurring the value of TomTom.
But if TomTom were to sell the Consumer division, it would actually resemble Tele Atlas, the company it acquired in 2008.
Goddijn's statement about not being able to ignore a good offer because he is looking out for the interest of all shareholders is not in line with previous statements.
As a CEO he has a fiduciary duty to look at all offers but Mr Goddijn has also indicated to us that he is not interested in retiring (despite having bought a multi-million dollar racing yacht), likes running the company and still feels that he and his team can add value.
Spinning off the Business Solutions division would indeed be relatively easy and will not cause the same problem as selling the Consumer division. Given the valuation of Fleetmatics (FY13 EV/EBITDA of 23) and taking into account differences in size and growth, the Business Solutions division could fetch around 650-700m. That valuation is high relative to the overall valuation of TomTom currently.
The remark about a possible expansion of the Apple contract is the least interesting albeit still positive. Given the character of the contract between TomTom and Apple currently, an extension of the services delivered (traffic? POIs?) is not likely to have a material impact on the P&L.
Conclusion & Action:
The statements from CEO Goddijn are likely to spark interest again about a possible take-over of TomTom or more complicated transactions, such as the sale of Consumer or Business Solutions.
We still think an acquisition is not likely (because of the complexity: what will a buyer do with all these different activities if the map database is all that is desired) but, as stated, speculation will increase.