Nokia: The Map Is On Sale
May. 7, 2015 4:12 AM • NOK
Summary
The WSJ reported that German automakers and BIDU could potentially make a bid on HERE.
BIDU's minority stake is confusing as it limits BIDU exposure ex-China.
I remain cautious on BIDU.
The Wall Street Journal reported that a consortium led by the German automakers Mercedes Benz, BMW and Audi, along with Baidu (NASDAQ:BIDU) and a Chinese private equity are preparing to bid on Nokia's (NYSE:NOK) HERE map unit. In my view, the map business has little value to Nokia so it makes sense to sell the unit to a willing bidder. The cash from the proceeds can be used to reinvest in Nokia's existing business or return them to the shareholders.
Potential bidders could include Apple (NASDAQ:AAPL), Tencent (OTCPK:TCEHY) and Xiaomi given their respective focus on O2O and location-based products. (see: Nokia: Who Needs A Map?) Additionally, I believe that BIDU may also be interested in the unit given the strategic importance of owning both the upstream content creation and the service integration effort to ensure a seamless final product (see: Baidu: Does The 800lb Gorilla Need A Map?).
According to the sources for WSJ, the German automakers will acquire a controlling stake while BIDU and a private equity will acquire a minority stake. The deal is said to be in the final stages and is expected to conclude in the next two weeks.
Rising value of the map
The motive behind the automakers is very clear. In a nutshell, all three want to step ahead of Google (NASDAQ:GOOG) (NASDAQ:GOOGL) to offer competitive map products that can eventually be applied to their future projects involving driverless cars. However, the mechanics involving BIDU is less clear (and outright confusing if it turns out to be the case because BIDU can use HERE's technology only in China).
Recall that BIDU currently has a partnership with HERE on providing map content on both PCs and mobile outside of China. This suggests that BIDU will likely have no exposure in map services outside China while having overlapping map content/technology in China from both NavInfo (BIDU's current content supplier) and HERE.
If this scenario plays out, BIDU would face the challenge of which technology it needs to rely on going forward because it makes little economic sense for BIDU to use both. With a minority stake in HERE, BIDU could be contemplating abandoning its multi-year partnership with NavInfo and migrate to the HERE platform. This will no doubt result in heavier spending and a lower free cash profile for the company. However, given the weakness of BIDU's core platform, mobile maps and the O2O offering are its key growth verticals.