GeoEye offers to buy competitor DigitalGlobe for $792M


This GeoEye satellite image from March 2011 shows damage after the March 11 earthquake and tsunami at the Fukushima Dai Ichi Power Plant in Japan. (AFP/GETTY IMAGES)

Update: DigitalGlobe rejects $792M buyout offer

Herndon-based GeoEye has offered to pay $792 million in cash and stock for its Longmont, Colo.-based competitor DigitalGlobe at a time when the nation’s two biggest satellite-imagery players will likely be hit by federal belt-tightening.

The deal would give DigitalGlobe shareholders $17 per share of the company, a figure that includes $8.50 in cash and $8.50 in GeoEye stock. The price tag marks a 26 percent premium over the firm’s closing value on May 3.

In an open letter to Jeffrey Tarr, the president and chief executive of DigitalGlobe, GeoEye chief executive Matt O’Connell said the companies had discussed a potential merger “during the past few months” as a way to combine resources and survive budget cuts.

O’Connell explained in an interview that a combined company would be able to reduce capital expenses by constructing fewer satellites over time and requiring fewer ground stations. Both firms are in the midst of building satellites, and O’Connell said he did not expect those projects to be affected.

Calls to DigitalGlobe were not returned. The company said in a statement that it will evaluate the offer.

“It’s hard to make the argument that the companies are better off separate, and I think anyone in government would agree with that as well,” said Andrea James, an industry analyst with Minneapolis-based Dougherty & Co.

The proposal comes as both companies prepare for prospective cuts to a $7.3 billion contract called EnhancedView that was awarded in 2010 to provide satellite imagery to the National Geospatial-Intelligence Agency.

“We are realists, and we say as you look at the long-term prospects for the program, it’s going to be under some financial pressure,” O’Connell said.

Both firms have been steadily building their base of commercial clients, pitching industries such as oil and gas, agriculture and real estate on the merits of an aerial view. For example, both companies feed images to Google’s Earth and Maps products.

If approved by DigitalGlobe, the merger would have to clear federal regulators. But O’Connell said that there are competitors based in other countries.

“From the government standpoint, isn’t it better to have one strong American company that can compete effectively with foreign companies who are coming on strong?” he said.

Steven Overly covers the business of technology, biotechnology and venture capital in the Washington region for The Washington Post and its weekly Capital Business publication. In that capacity, he has written about start-up struggles, investment trends and major drug discoveries.
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