Chicago-based digital map provider Navteq Corp. announced last October it would be acquired by Finnish cell phone giant Nokia Corp. for $78 per share. But Navteq stock has been languishing around $74 per share.  How come?

“Navteq is now trading $4 below where it is supposed to close with Nokia,” said Yair Reiner, analyst at Oppenheimer & Co. Inc. “It’s not a huge discount, but there’s not 100 percent certainty on the Street that this deal will go through.”

According to Reiner, Nokia has yet to file for antitrust clearance by the European Union, and that's raising doubts. Nokia and Navteq are committed, he said, but they're waiting to see the E.U.'s decision on another merger deal, a bid by personal navigation device (PND) maker TomTom NV for digital map provider and Navteq competitor Tele Atlas NV.

“The reason that Navteq shares haven’t hit $78," said JMP Securities analyst Ingrid Ebeling, "is obviously because the market has factored in a percent probability of the deal going through, which is probably about 90 percent... So there’s a 10 percent probability that it won’t go through, pending E.U. approval.”

According to April Horace, analyst at Janco Partners Inc., the TomTom-Tele Atlas deal isn't assured, either. She said E.U. regulators are concerned that if TomTom and Tele Atlas merge, several personal navigation device makers would not be able to conduct business with Tele Atlas without also giving away their trade secrets to their competitor TomTom. 

“TomTom would have better insights as to what its competitors are doing, which can potentially give them an edge,” Horace explained. “Some of its competitors are going to be reluctant to provide all their detailed product rollout plans to Tele Atlas.”

In any event, if the E.U. should block the Nokia-Navteq combination, analysts believe that Navteq remains well positioned to forge ahead on its own.

The company, whose maps are used by Google and car makers among others, went public in 2004 and has experienced strong growth ever since.

The analysts, who continue to cover Navteq despite the acquisition agreement, estimate that when it reports next week for the Dec. 31 quarter it will post higher earnings per diluted share of 48 cents compared with 45 cents a year ago, and a 36 percent increase in sales to $246.2 million.

For all of 2007, analysts estimate earnings of $1.59 per diluted share on sales of $821.5 million, compared with earnings of $1.15 per diluted share on sales of $581.6 million in 2006.

In its report for the quarter ended Sept. 30, Navteq projected 2007 earnings of $1.50 to $1.55 per diluted share on sales of $815 million to $825 million.

“Garmin, TomTom and the other GPS device makers had another spectacular quarter, so we might see some outperformance from Navteq in that segment,” Ebeling of JMP Securities said. “They’ve also done a great job containing expenses.”

Prior to the merger agreement shares of Navteq were already soaring, from a low of $30.44 in March to as much as $79.27 just before the acquisition announcement in October. Since then, as shares have held steady at around $74, strong demand for the company’s digital maps continues to fuel strong growth of the business.

According to Reiner of Oppenheimer & Co., Navteq shares soared in the second half on news that TomTom and Tele Atlas would merge. But Ebeling attributed the upswing more to strong performance.

“The last June quarter was a disappointing quarter for Navteq, and they were going into the next quarter talking about how it was a tough year for auto sales,” Ebeling said, noting that in-dash car navigation had been a vital market for Navteq. In fact, about 85 percent of Navteq’s total revenue came from the automotive industry at the time, according to Ebeling.

“There was a huge fear out there that the PND market would not ramp fast enough to take over the fact that the in-dash market was sluggish,” she said. “That did not prove to be the case. The last half of last year was just extremely strong in the PND market, and it’s been strong all this year.”

With its meticulously detailed databases of 72 countries, Navteq is the main provider of digital maps for PND makers such as Garmin Ltd. As such, Reiner stated, Nokia’s hope is to reap the benefits of the rapid expansion of Navteq rather than to absorb and rebrand it.

“It’s going to be very important to keep Navteq as an independent subsidiary,” he said. “Navteq sells maps to both direct and indirect customers of Nokia, and at some point Navteq would like to sell maps to RIM for its Blackberry, Motorola, Samsung and LG.  The more Navteq is seen as independent, the better for Nokia.”

Nokia also is looking to enter the PND market in a big way, Reiner said. Some Nokia handsets already are location-enabled, and free access to Navteq’s map database would allow Nokia to contend with the likes of Garmin and TomTom.

“Nokia did not want to find itself in a position down the line where it had to buy maps from one of its competitors in the event that Navteq was purchased by someone else,” he said. “This purchase lets Nokia compete, at least at an even keel, with anyone else in the PND space.”

The PND market is still expanding rapidly, with European units expected to rise this year by 20 percent and U.S. units by 75 percent, according to Reiner. As PNDs begin to penetrate Asia, Latin America and Eastern Europe, there will be even more demand for digital maps, he predicts.

Similarly, Navteq is bound to reel in customers as more and more new cars ship with navigation systems built in. Just as new computers require an operating system like Windows, each new location-enabled car will need a digital map.

Currently, 20 percent of cars in Europe and almost 15 percent in the U.S. are navigation-ready, Ebeling said. “There’s a huge untapped market there, but they’re more expensive, so we don’t foresee the growth to be like the PND side.”

“They have growth coming from a number of different areas, and very strong customer relationships,” she added.

PNDs and in-dash units are just the tip of the iceberg. Navteq has yet to really tap into the wireless market, where location-enabled phones are beginning to replace regular handsets. “We really haven’t seen the impact of the wireless market on Navteq’s results,” Reiner stated. “So that’s also an area where they can show some growth.”