Herndon-based GeoEye plans to combine with competitor DigitalGlobe in a deal worth $900 million, the firms said Monday, following the federal government’s move to reduce funding for their most lucrative contract.
Both companies capture photos and other imagery from satellites that orbit the Earth, then sell them to federal agencies, the military and others who benefit from a bird’s-eye view of the planet.
The combined company would retain the DigitalGlobe name and its executive leadership, including chief executive Jeffrey Tarr. DigitalGlobe shareholders would control 64 percent of the company and its board would hold six of 10 seats.
Meanwhile, GeoEye shareholders would receive the option of cash or stock in the combined company, of which they collectively would hold 36 percent. GeoEye chief executive Matt O’Connell would serve as an adviser.
The merger, which must clear regulators, comes as the National Geospatial-Intelligence Agency has informed both companies that it plans to curtail funding for its $7.3 billion EnhancedView contract, pieces of which were awarded to both firms 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, however, 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.
“We originally started out by bidding for them, but both sides saw the merit in this kind of combination,” O’Connell said. “Contract renewals . . . certainly guided the thinking of both boards as we looked at which company should lead the way into the future.”
DigitalGlobe said it expects the merger will yield net future savings of $1.5 billion, primarily because of fewer expenses associated with building and launching satellites. 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 employs nearly 750 people, including about 430 in the Washington area. Tarr said he expects to maintain GeoEye’s Northern Virginia operations, though the combined company will keep its headquarters in Longmont, Colo.
O’Connell said much of GeoEye’s local workforce focuses primarily on providing imagery-based analysis and other intelligence services, a line of business in which DigitalGlobe has a smaller presence but aims to expand.
“That bodes well for a lot of the people who are in Virginia right now,” O’Connell said.
Both executives said that the combined company would boast a more diverse client base and derive about 50 percent of revenue from the federal government. Both firms sell images to companies in such industries as real estate and transportation, as well as to foreign governments.