May 14, 2012

GeoEye announces proposal to acquire DigitalGlobe, DigitalGlobe rejects it

Estimated Article Reading Time: 3 min.

On Friday, May 4, GeoEye held an investor webcast announcing that it proposes to acquire DigitalGlobe, Inc., seen by DigitalGlobe as a “public hostile offer.” The combination of these two satellite imaging companies would form the world’s largest fleet of high resolution commercial imagery satellites, according to GeoEye.

Matt O’Connell CEO and President of GeoEye, said that the two companies combined would result in “greater capabilities to meet national security needs, be more cost effective to the U.S. government during a fiscally restrained period, improve value to decision makers, warfighters and shareholders.”

A quick overview of the proposed acquisition: DigitalGlobe shareholders will receive $17.00 per share in total consideration, payable $8.50 per share in cash and $8.50 in GeoEye stock, or 0.3537 shares of GeoEye stock for each share of DigitalGlobe stock. This price represents a 26% premium to DigitalGlobe’s closing share price on May 3, 2012. According to O’Connell, the proposal is structured to provide DigitalGlobe shareholders with the opportunity to participate in the dynamic future growth of the combined company.

Some shareholders might prefer cash, said O’Connell, “we would consider an all cash deal. Our proposal offers shareholders 50% in cash and 50% in stock. We’ve indicated to directors of DigitalGlobe, we consider an all cash deal, or reducing the cash consideration and increasing the stock portion of the deal.” In addition, affiliates of Cerberus Capital Management, L.P., GeoEye’s largest shareholder, are prepared to contribute substantial capital in support of the proposed transaction.

O’Connell said that GeoEye has been in conversation with DigitalGlobe regarding the potential transaction for several months. DigitalGlobe has considered and rejected their prior proposals, and now we think it’s appropriate to make our proposal publics,” O’Connell said. “because it’s such an important matter for all shareholders to know about and consider.”

Making the case for the proposal, O’Connell continued, “This makes proposal makes strategic sense for the U.S. and international customers, for U.S. taxpayers and shareholders of both companies. We’re proposing a structured solution that gives our nation’s warfighters and disaster league workers the information they need while at the same time addressing the nation’s budget deficit. The combined company will create a new class of geospatial information and analytic services that ensures continued technology leaderships and accelerated growth in what is already an expanding industry. In turn, the combined company will be better able to meet the need of U.S. government and international and commercial customers around the world.”

Referring to the “uncertainty in the market created by the U.S. government budget review process for 2013,” O’Connell said that GeoEye is looking at more effective ways to provide the most value during these times to large government clients, who are GeoEye and DigitalGlobe’s primary clients. “A combined company would be larger, more financially sound and better positioned financially without putting our nation’s warfighters or intelligence programs at risk during this fiscally challenging period,” cited O’Connell, linking the proposed acquisition to the stakeholders’ and public’s concerns about national security.

75% of the foundation layer of geointelligence is built on geospatial imagery. Commercial satellite imagery directly supports military operations and the nation’s intelligence interests. The foundation layer is the basis for other geospatial products, for mission planning and rehearsal, command and control, advanced navigation, and targeting – which are all predicated on having geospatial information at their fingertips for combat and command.

With the acquisition of DigitalGlobe, “We can fly one less satellite in the constellation, and still meet our customer needs, thus requiring far less capitalist expenditures,” said O’Connell. “We successfully acquired Space Imaging and SPADAC, we continue to execute well on our business, we believe our current company will deliver value for both shareholders.”

The combined company promises to “bring efficiencies to the National Geospatial-Intelligence Agency (NGA)’s EnhancedView program, in time this will bring the U.S. government increased efficiency only possible global collection, dissemination, production and analytical capabilities.” O’Connell reiterated how the acquisition would enable the two companies to deliver better service to meet national security needs and support warfighters, plus create more high technology jobs in the U.S. –making it look like a proposal DigitalGlobe shareholders may not be able to refuse.

However, over the weekend, DigitalGlobe board members rejected this unsolicited proposal unanimously. From the press release: “Following GeoEye’s public hostile offer last Friday, DigitalGlobe again made the same proposal for the Company to acquire GeoEye, conditioned on reaching agreement over the weekend. Given GeoEye’s rejection of that proposal, DigitalGlobe terminated discussions and will await the government reaching its budget decision regarding EnhancedView. When the government reaches its decision, DigitalGlobe will consider whether to make a proposal to acquire GeoEye.”

More information