This blog post has been updated.
Herndon-based GeoEye has agreed to combine with competitor DigitalGlobe in an agreement worth $900 million as the satellite imagery companies face a federal budget cut to one of their most lucrative contracts.
Longmont, Colo.-based DigitalGlobe appears to have the upper hand in the deal. The combined company will retain the DigitalGlobe name and its executive leadership, according to a statement, and its shareholders will control 64 percent of the firm.
Meanwhile, GeoEye shareholders have been given the option of cash or stock in the combined company, of which they will hold 36 percent. GeoEye Chief Executive Matt O’Connell will assist executives in an advisory capacity, the statement said.
DigitalGlobe said it expects the merger will yield net future savings of $1.5 billion, but DigitalGlobe Chief Executive Jeffrey Tarr said in an interview that “one of the very attractive aspects of this combination is the majority of those cost savings are not people related.”
GeoEye employed 750 people at the end of last year, about 350 of whom were local. Tarr said he expects to maintain GeoEye’s operations in Herndon, though the combined company will keep its headquarters in Colorado.
The merger comes as the National Geospatial-Intelligence Agency has said Congress will curtail funding for its $7.3 billion EnhancedView contract, pieces of which were awarded to both companies in 2010.
GeoEye learned last month that its funding for the next fiscal year may be delayed or reduced unless Congress puts more money into the program. DigitalGlobe, on the other hand, received full funding for its portion of the contract.
GeoEye attempted to acquire DigitalGlobe in May for $792 million, but that offer was rebuffed after a weekend of negotiations because the Colorado company said it was better positioned to endure a slowdown in government spending.
“One of the key factors is that we felt we needed clarity on the government budget process before proceeding to negotiate the combination,” Tarr said.
He added that the combined company will have a more diverse client base with about 50 percent of revenue coming from the federal government. Both firms sell their images to companies in such industries as real estate and transportation, as well as foreign governments.