* Offer for $17/shr - a 26 pct premium
* DigitalGlobe rejected offer - GeoEye CEO
* GeoEye willing to restructure offer
May 4 Satellite imagery company GeoEye Inc
offered to buy rival DigitalGlobe Inc for $792
million in cash and stock to counter potential revenue losses
from U.S. defense budget cuts.
DigitalGlobe had rejected the $17-per-share proposal - a 26
percent premium to the stock's close on Thursday - GeoEye's
Chief Executive Matt O'Connell said on a conference call with
The companies' shares have come under pressure in recent
weeks amid reports that the U.S. government plans to halve or
significantly scale back its expected procurement of $7.3
billion in digital imagery over the next decade.
"This proposal represents the most prudent course of action
for both GeoEye and DigitalGlobe, given the continuing
uncertainty in the market created by the U.S. government's
budget review process for 2013 and beyond," O'Connell said.
Defense analyst Loren Thompson said consolidation in the
commercial imagery sector would make sense, given the U.S.
government's slackening demand for its products.
"Combining the two companies would allow significant
cost savings at a time when the future demand outlook for
medium-resolution overhead imagery is uncertain," said Thompson,
chief operating officer of the Lexington Institute.
DigitalGlobe and GeoEye are the only commercial satellite
imagery companies supplying to U.S. spy and military agencies.
GeoEye shares have lost 31 percent value in the last one
year, while the DigitalGlobe stock has nearly halved in value.
The companies also supply imagery to location-based
technologies such as Google Maps, and navigation device
application makers such as Garmin Ltd and Nokia Oyj
Under the current proposal, DigitalGlobe shareholders will
get $8.50 per share in cash and 0.3537 shares of GeoEye stock
for each share held.
The two companies had been negotiating a possible deal for
months and discussed a possible merger as well.
GeoEye cited a March 2 letter from DigitalGlobe that said a
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 U.S. government and other
DigitalGlobe was not immediately available for comment. The
Pentagon had no immediate comment.
GeoEye said it will consider restructuring the proposal to
make it an all-cash offer, or to reduce the cash component.
Cerberus Capital Management, the company's major
shareholder, is prepared to contribute substantial capital in
support of the transaction, GeoEye said.
It said the transaction will not involve any undue delay and
that it had already undertaken a preliminary review of antitrust
and international competition issues.
GeoEye, which had cash and cash equivalents of $172.0
million as of March 31 and is valued at $547 million, is being
advised by Goldman, Sachs & Company, Convergence Advisors LLC
and Latham & Watkins LLP.
DigitalGlobe shares jumped 20 percent to $16.10 on Friday on
the New York Stock Exchange.
GeoEye's shares rose 10 percent to $26.31 on the Nasdaq, but
were later trading up 2 percent at $24.42.