U.S. navigation device maker Garmin Ltd is in early talks to buy Britain's Raymarine Plc in a bid to gain market share in Europe.
Raymarine, which makes fishfinders, autopilots, marine radar and GPS systems for leisure boats, and rivals like Garmin and Norway's privately held Navico are struggling to chart a course in a weak economy that has crimped demand for discretionary consumer goods they offer.
Raymarine gives Garmin the all-important original equipment manufacturer (OEM) footprint, Panmure Gordon analyst Oliver Wynne-James said upgrading Raymarine's stock to buy from hold.
The deal would be worth about 20 million pounds ($32.59 million), or 24 pence per Raymarine share, and probably has the right magnitude of sweetener to move talks forward, he said doubling his price target on the stock to that amount.
Raymarine's shares closed 29 percent higher at 16.5 pence on the London Stock Exchange, while Garmin's shares were trading down 3 percent at $27.98 in afternoon trade on Nasdaq.
Wynne-James said there was a slim chance that other interested parties would enter the fray, with the main hurdle being persuading Garmin to pay more than the value of Raymarine's net debt of about 96 million pounds.
Earlier, Raymarine confirmed that it was in early talks with a number of parties, including Garmin, after the British firm's shares surged more than 96 percent on a report that the company had received an approach from Garmin.
A Garmin spokesperson declined to comment.
The deal, if it went through, was a relatively low-risk consolidation play, cutting out redundant costs, rationalizing overlapping product lines, scaling up manufacturing, and leveraging a newly-expanded channel, said Oppenheimer & Co analyst Yair Reiner.
The deal would lift Garmin's fiscal 2010 earning per share by 15 cent to $2.64, and add $150 million to its revenue, Reiner said.
He estimates that Raymarine and Garmin's marine segment enjoyed similar revenue levels and a market share of about 30 percent each in 2008.
Garmin's marine segment sales fell in four of the last five quarters and is expected to stay weak until the economy rebounds.
However, Garmin believes it is gaining market share in the segment, which accounted for about 9 percent, or $98 million, of its total sales in the first half of 2009.
Debt-laden Raymarine has been struggling to stay afloat and in March said it was looking to either sell itself or raise equity, after posting a 24 percent fall in first-half sales.
If it failed in both measures, it would secure additional medium-term debt facilities with its banking syndicate, Raymarine said in a statement.
If confirmed, this will be Garmin's first acquisition this year, following six last year, according to Reuters data.
Garmin generated $246 million of free cash flow in its latest quarter, for a cash and marketable securities balance of more than $1.5 billion.
($1=.6137 Pound) (Editing by Gopakumar Warrier, Pradeep Kurup)