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GeoEye zooms in on DigitalGlobe

by Lou Whiteman  |  Published May 4, 2012 at 12:15 PM
geoeye_227x128.jpgPrivate equity-backed GeoEye Inc. went public Friday with a $792 million cash and stock offer for rival DigitalGlobe Inc. A merger would create the world's largest commercial fleet of imaging satellites.

Herndon, Va.-based GeoEye is offering $8.50 per share in cash and .3537 shares of its stock for each share of DigitalGlobe for a total of $17 per share, a premium of 26% over the target's Thursday close. GeoEye said its board was willing to consider an all-cash offer, or to reduce the cash component, and said largest shareholder Cerberus Capital Management LP is prepared to contribute "substantial capital support" to the proposed transaction.

GeoEye and Longmont, Colo.-based DigitalGlobe provide images and related tools to commercial and government clients via their fleets of satellites. That business is under pressure in large part because the Obama administration is expected to cut funding for commercial imagery by more than half in its next budget.

"In the face of significant pressure on the U.S. defense budget and intensifying international competition, a combined company will be better positioned to provide the U.S. government with the time-sensitive geospatial intelligence that is needed to support its mission in a very cost-effective manner," GeoEye CEO Matt O'Connell said in a statement.

DigitalGlobe offered no comment Friday morning. The two sides have held discussions for months, O'Connell said in a letter sent Friday to DigitalGlobe CEO Jeffrey R. Tarr, adding that "we both appreciate" the benefits of a combination. However, GeoEye executives said Friday that DigitalGlobe had rejected the terms of the deal, leading GeoEye to make its offer public.

O'Connell quoted a letter written by Tarr March 2 that said "we do agree that a well-managed combined company would enjoy material scale and scope benefits in addition to significant cost savings and would be well positioned to meet the needs of the U.S. government and other customers." The letter also implied that DigitalGlobe's advisers have supported GeoEye's opinion that a deal is likely to clear regulatory scrutiny.

GeoEye was founded in 1992 as a division of Orbital Sciences Corp. and was spun off in 1997, changing its name in 2006 when it acquired Denver-based Space Imaging Inc. from Raytheon Co. and Lockheed Martin Corp.

Affiliates of Cerberus own about 24.1% of the company's shares, having first bought into the company in a 2010 private placement.

DigitalGlobe traces its roots to Worldview Imaging Corp., which was founded in 1992 in Oakland, Calif. The company changed its name in 2001 and went public in 2009. Shares of the company climbed 17.1%, or $2.32, to $15.84 on Friday morning.

GeoEye is taking financial advice from Goldman, Sachs & Co. and Convergence Advisors LLC and legal counsel from Latham & Watkins LLP.

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Tags: DigitalGlobe Inc. | GeoEye Inc. | Latham & Watkins LLP | M&A | PE

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