July 23, 2012 / 12:16 PM / 5 years ago

UPDATE 3-DigitalGlobe to buy former suitor GeoEye for $453 mln

* Cash-and-stock deal offers 34 pct premium at $20.27/shr

* DigitalGlobe CEO Jeffrey Tarr to head combined company

* Deal expected to close Q4 2012 or Q1 2013

* Shares of GeoEye and DigitalGlobe rise

By Bijoy Anandoth Koyitty and A. Ananthalakshmi

July 23 (Reuters) - DigitalGlobe Inc, which rejected the advances of GeoEye Inc earlier this year, has struck a deal to buy its former suitor for $453 million, creating the world’s largest provider of commercial satellite imagery.

The companies, the only suppliers of commercial satellite imagery to U.S. spy and military agencies, are joining forces ahead of drastic cuts expected in the U.S. defense budget.

The combined company aims to derive about half of its revenue from commercial and international customers in a bid to reduce dependence on the U.S. government.

In the commercial sector, DigitalGlobe and GeoEye supply imagery to location-based technologies like Google Maps , and navigation device application makers such as Garmin Ltd and Nokia Oyj.

“By bringing together our two companies, we expect to immediately gain substantial scale, diversify our revenue, generate more than $1.5 billion in synergy,” DigitalGlobe CEO Jeff Tarr, who will head the company, said on a conference call with analysts.

DigitalGlobe said the combined company expects pro forma revenue base of more than $600 million for 2012, after adjusting for proposed cuts in government funding.

Analysts on average expect DigitalGlobe to report revenue of $386.7 million for 2012, according to Thomson Reuters I/B/E/S. Analysts expect GeoEye to report revenue of $366.6 million for the period.

Tarr, responding to a question on potential antitrust issues, said the companies have begun talks with key customer, the U.S. National Geospatial Intelligence Agency (NGA), on the deal.

“We believe there are no regulatory hurdles we can’t overcome ... We have seen no red flags. We are well advised and look forward to closing in a timely manner,” Tarr said on the call.

The cash-and-stock offer values each GeoEye share at $20.27 on the basis of the stock’s Friday closing price of $15.17, representing represents a 34 percent premium.

DigitalGlobe said it 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, which is just under $1.1 billion.

The deal is expected to close in the fourth quarter of 2012 or the first quarter of 2013.

TABLES TURN ON GEOEYE

DigitalGlobe rejected a $792 million cash-and-stock offer from GeoEye in May, saying it would fare better than its rival in the expected round of budget cuts.

GeoEye suffered a setback in June when a U.S. government agency warned that it may cut funding to GeoEye, sending its shares down sharply and making it vulnerable to a takeover.

DigitalGlobe in contrast said the government agency plans to renew its contract for the third full year, without any cuts.

GeoEye’s largest shareowner Cerberus Capital Management and its chairman and CEO have agreed to vote in favor of the merger, the companies said.

Cerberus agreed that its ownership in the combined company will not exceed 19.9 percent. It will nominate one of GeoEye’s board designees.

The new board will have 10 members, initially comprising of six members from the current DigitalGlobe board and four from GeoEye.

Under the terms of the deal, GeoEye stockholders can opt for 1.137 shares of DigitalGlobe stock and $4.10 per share in cash or 100 percent of the consideration in cash at $20.27 per share. They can also choose 100 percent of the consideration in stock at 1.425 shares of DigitalGlobe stock.

GeoEye shareholders are expected to own 36 percent of the new company under the deal, which caps the cash portion of the offer.

DigitalGlobe shares were up 8 percent at $15.38 in morning trade on the New York Stock Exchange, while those of GeoEye were up 29 percent at $19.55 on the Nasdaq.

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