Satellite imagery company DigitalGlobe, Inc. (DGI) agreed Monday to acquire smaller rival GeoEye, Inc. (GEOY) for about $20.27 per share in a cash and stock deal valued at about $900 million, creating a global leader in earth imagery and geospatial analysis. The deal value includes the assumption of debt, while excluding debt, the deal is reportedly valued at about $450 million.
The deal has the unanimous approval of both companies boards of directors. The deal, primarily subject to shareholder approval of both companies, is expected to close in the fourth quarter of 2012 or the first quarter of 2013.
"Together we will create a more efficient, more diversified and more capable company, better positioned to thrive in a time of unprecedented pressure on our nation's defense budget. Once the merger is complete, we will emerge as an industry-leading, geospatial information business that does even more to help our customers better understand our changing planet," DigitalGlobe President and CEO Jeffrey Tarr said in a statement.
The offer price of $20.27 per share represents a 33.6 percent premium over GeoEye closing price of $15.17 on Friday. Following the news, GeoEye shares are surging about 29 percent in early trades in a bid to reach the offer price, while DigitalGlobe shares are up 5 percent.
Longmont, Colorado-based DigitalGlobe and Herndon, Virginia-based GeoEye are the two principal providers of commercial Earth observation satellite imagery to the US government. The merger, which would create the world's largest fleet of high resolution commercial imagery satellites, is expected to help both the companies to cope with U.S. defense budget cuts.
GeoEye, which had tried to buy DigitalGlobe two months ago, has now become the acquired. After spurning initial verbal offers beginning in February and a $17 per share offer by GeoEye in early May, DigitalGlobe said it will consider making an offer to acquire GeoEye, which made the offers due to concerns that the government's budget cuts would affect DigitalGlobe's business.
The U.S. government hinted that a $7.3-billion, 10-year contract that the two companies are sharing would be cut substantially. However, indications have since emerged that GeoEye contract will be renegotiated at reduced levels, and not DigitalGlobe's.
The deal will give GeoEye shareholders the right to elect either 1.137 shares of DigitalGlobe common stock and $4.10 per share in cash or only $20.27 in cash, or only 1.425 shares of DigitalGlobe, for each share of GeoEye stock they own. However, the amount of cash and stock will be subject to proration depending upon the elections of GeoEye shareholders.
Following the closure of the deal, DigitalGlobe shareholders are expected to own about 64 percent and GeoEye shareholders are expected to own about 36 percent of the combined company.
DigitalGlobe said it has secured a $1.2 billion fully committed financing from Morgan Stanley Senior Funding, Inc. and The Bank of Tokyo-Mitsubishi UFJ, Ltd. to refinance the combined company's outstanding debt.
The combined company is projected to have a pro forma 2012 revenue base of more than $600 million, and have a constellation of five earth observation satellites and a broad suite of high-value geospatial production and analytic services. The combined company will also have two state-of-the-art satellites under construction, WorldView-3 and GeoEye-2.
The combined company will be named DigitalGlobe and continue to trade on the NYSE under the symbol DGI, with Tarr leading the combined entity as president and CEO. It will have a 10-member board of directors, with six initial members from the current DigitalGlobe board and four initial members from the board of GeoEye.
The combined company will be headquartered in Colorado, have a large and important presence in Missouri and Virginia, and maintain offices in other locations around the globe.
Meanwhile, GeoEye's largest shareholder, Cerberus Capital Management, L.P., has agreed to vote in favor of the merger, and DigitalGlobe's largest shareholder, Morgan Stanley Principal Investments, Inc., have also agreed to vote in favor of the issuance of DigitalGlobe common stock in the merger.
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