By Edward Taylor and Eric Auchard
FRANKFURT (Reuters) - German carmakers BMW (DE:BMWG), Audi (DE:VOWG_p) and Mercedes (DE:DAIGn), will pay around 2.5 billion euros ($2.8 billion) to buy Nokia's maps business, beating out high-tech rivals for location services seen as key to the future of self-driving cars.
Germany's three premium carmakers will hold equal stakes in the business, known as HERE, clubbing together to keep the assets away from Internet rivals such as Uber [UBER.UL] of Silicon Valley and China's Baidu (O:BIDU) and Tencent (HK:0700).
The deal has an enterprise value of 2.8 billion euros, including liabilities of nearly 300 million euros, for which Nokia (HEL:NOK1V) will compensate the carmakers, the Finnish company said on Monday. The transaction is expected to close in early 2016.
The purchase allows automakers to offer new premium features, like autonomous driving, in luxury cars, shaking up the pecking order between car makers, their parts suppliers and software rivals like Uber, Google (O:GOOGL) or Apple (O:AAPL).
"With the joint acquisition of HERE, we want to secure the independence of this central service for all vehicle manufacturers, suppliers and customers in other industries," said Chief Executive Dieter Zetsche of Daimler , which invented the motor car in 1886.
But it is unclear how other HERE customers, including rival carmakers, may respond to Germany's carmakers owning map technology, which many in the automotive, Internet and logistics industries see as key to their own strategies.
"There is a risk that the other automakers will be pushed further into the arms of Google," said Richard Windsor an independent financial analyst who tracks major tech players.
HERE's primary competitor is Google Maps.
Intelligent mapping systems like HERE's are the basis on which self-driving cars linked to wireless networks can perform functions such as recalculating a route to the nearest electric charging station or around a traffic jam or accident.
They are also used in everything from consumer smartphone navigation to local transport services.
At a later stage, the carmakers will invite private equity firm General Atlantic to join the consortium as an investor and potential mediator, two sources familiar with the matter said.
SHIFTING RIVALRIES
HERE is the leading supplier of digital maps for most of the world's top carmakers, who account for half its expected roughly $1 billion revenues in 2015.
In addition, it competes with smaller Dutch mapping firm TomTom (AS:TOM2), which has begun to retool its business to focus on carmakers rather than consumers.
TomTom recently teamed up with Bosch [ROBG.UL], one of the world's top auto suppliers, to create an alternative platform to HERE for carmakers.
HERE was created via the $8.1 billion acquisition of Navteq in 2008 by Nokia, which aimed to create consumer map services for mobile phone users but later switched to focus on carmakers. Nokia is now shedding its maps business as it integrates its purchase of telecom network equipment maker Alcatel Lucent (PA:ALUA).
The Finnish company, which subsequently wrote down the value of HERE to around 2 billion euros, said it expected to book a gain on the sale to the carmakers, including cumulative foreign exchange translation differences, of around 1 billion euros.
Analysts said the 2.5 billion euros in net proceeds for Nokia was at the low end of market expectations, which were between 2-4 billion euros during the auction process.
Shares in Nokia dipped 0.6 percent to close at 6.39 euros, underperforming a flat European technology index (SX8P). TomTom shares, which have gained 23 percent over the last three months on speculation it could also become a takeover target, ended 2 percent higher following news of the deal.
In bidding for HERE, the German carmakers appeared to use their status as key customers to fend off other bidders, said analyst Mikael Rautanen of Inderes Equity Research. "That is why the price was lower than initially expected," he said.
Nokia was advised on the deal by investment bank Evercore and law firm Shearman & Sterling. Law firm Hogan Lovells advised the overall automaker consortium and Daimler specifically.
Self-driving and connected car services could become a $50 billion market, analysts at Exane BNP Paribas (PARIS:BNPP) have estimated.
Andreas Tschiesner, head of McKinsey's automotive practice in Germany, said: "The automotive industry is facing a big disruption through connectivity and connected driving technologies. These features will become an important source of differentiation."
