In a move that would create the world’s largest fleet of commercial imagery satellites, GeoEye has offered to purchase DigitalGlobe. This announcement comes at a time when both companies are under pressure to make up from the potential revenue loss from the proposed cutting of the Enhanced View program. GeoEye expects that the new company would be well-positioned to meet the evolving needs of the U.S. government and other customers in this fiscally constrained environment.
“The acquisition will benefit our customers, citizens and our employees,” said Matt O’Connell, GeoEye CEO, during an investor call this morning. “We can’t give you any assurances of what the federal budget will look like in 2013, but we will continue to fight for the need of the warifighter. We will also continue to make sound and productive business decisions, and we will remain focused on strong growth.”
GeoEye has also been ramping up its efforts to showcase the value of commercial imagery to lawmakers and other government leaders. Last week, the company participated in an event on the Hill that also featured experts from Google, ITT Exelis, and NOAA, who all highlighted the importance of commercial satellite imagery to our economic and national security. These companies also displayed tech demos to showcase their products and services.
In addition, there are many other experts out there who have been making the case for commercial imagery. Our readers may recall that we hosted a podcast panel of experts on the topic of the viability of commercial imagery for government and defense. This panel included Kevin Pomfret, Executive Director of the Centre for Spatial Law and Policy; Josh Hartman, Principal at the Center for Strategic Space Studies and the CEO of the Horizon Strategies Group; and Dennis Jones, President of the Jones Consulting Group. Jones actually predicted that a move like this – an acquisition or merger between GeoEye and DigitalGlobe – would be highly likely.
In addition, in November of last year, we spoke with O’Connell who provided us with some key insights into how the Enhanced View contract.
In 2010, GeoEye announced that it was awarded the $3.8 billion contract, of which DigitalGlobe also received $3.55 billion to support it as well. The Enhanced View (EV) Program is a ten-year innovative public-private partnership between the U.S. Government (USG) and domestic commercial imagery providers to augment the Nation’s satellite imagery collection constellation. It provides high-quality imagery that can be freely shared within the US government and or with allied and coalition forces because of its unclassified nature.
Finally, be sure to check out the letter that GeoEye sent to DigitalGlobe regarding the acquisition.
May 4, 2012
Jeffrey R. Tarr President and Chief Executive Officer DigitalGlobe, Inc. 1601 Dry Creek Drive, Ste. 260 Longmont, CO 80503
Dear Jeff:
During the past few months, we have discussed with you a combination of GeoEye and DigitalGlobe. We both appreciate that a combination of our two companies results in greater capability to meet national security needs, is more cost effective to the government during this fiscally constrained period, and provides improved value to decision-makers and warfighters.
The considerable scale of the combined entity creates a strong domestic player in satellite imagery which could compete more effectively with foreign providers. The combination also allows for operating expense synergies and reduced capital requirements while better satisfying customer needs. Your letter from March 2, 2012 conveys this same sentiment:
“…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 US Government and other customers.”
We both acknowledge that there have been rumors and speculation regarding cuts. Given this uncertain political and fiscal climate, we believe it is in our mutual interest to provide our customers with creative solutions to problems rather than passively speculate on one or another outcome.
To that end, we propose that GeoEye acquire DigitalGlobe in a friendly transaction whereby DigitalGlobe shareholders would receive $17.00 per share in total consideration. Such consideration will be payable as $8.50 per share in cash and $8.50 in GeoEye stock (DigitalGlobe shareholders would receive 0.3537 shares of GeoEye stock for each share of DigitalGlobe owned). This price represents a 26% premium to DigitalGlobe’s closing share price on May 3, 2012. In addition, our Board of Directors would consider restructuring our proposal to increase the cash consideration up to 100% of the purchase price or, in the alternative, reducing the cash consideration and increasing the stock portion of our offer.
Given our financial strength and longstanding supportive banking relationships, we are highly confident that financing will not represent an impediment to the consummation of the proposed transaction. To provide further certainty to the DigitalGlobe Board of Directors, we have been advised that affiliates of Cerberus Capital Management, L.P., our largest shareholder, are prepared to contribute substantial capital in support of our proposed transaction.
We believe that your shareholders and your Board will agree that this is a compelling proposal.
Our Board has authorized this proposal. We are prepared to move quickly to execute a mutually acceptable definitive agreement. Our offer is subject to satisfactory due diligence, the receipt of U.S. Government approvals, and final Board and shareholder approvals.
We have already undertaken extensive due diligence on DigitalGlobe’s public filings and are now prepared to undertake a mutual detailed due diligence review at your earliest convenience. We believe that with your cooperation, we can complete this detailed due diligence and execute a definitive agreement promptly.
Finally, it is our view that a combination of our companies would have no significant contingencies and that this transaction will be promptly consummated. Our counsel, with the assistance of a highly regarded economist, has undertaken a preliminary review of antitrust and international competition issues attendant to the proposed combination, and believe that, with U.S. Government customer support, the transaction will not involve undue delay. We understand from your communications to us that you and your advisors agree.
We have engaged Goldman, Sachs & Company, Convergence Advisors LLC and Latham & Watkins LLP to advise us in this transaction.
We look forward to a response to this letter and sincerely hope that we may move forward to a negotiated transaction.
Sincerely,
Matthew M. O’Connell
CC: DigitalGlobe Board of Directors
ICT4PE&D
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