Earth observation operator GeoEye has launched a US$17 per share offer for its rival DigitalGlobe, valuing the latter at approximately US$792.3m.
Under the terms of the proposed transaction, DigitalGlobe’s shareholders would receive US$8.50 per share…
Earth observation operator GeoEye has launched a US$17 per share offer for its rival DigitalGlobe, valuing the latter at approximately US$792.3m.
Under the terms of the proposed transaction, DigitalGlobe’s shareholders would receive US$8.50 per share in cash and US$8.50 in GeoEye stock or 0.3537 shares of GeoEye stock for each share of DigitalGlobe stock. This price represents a 26% premium to DigitalGlobe’s closing share price on 3 May 2012 and a valuation multiple of approximately 3.5 times DigitalGlobe’s 2011 adjusted EBITDA.
GeoEye also stated that it would consider restructuring its offer either by increasing the cash consideration up to 100% of the purchase price or by reducing the cash portion and increasing the stock offer.
GeoEye added that it was ‘highly confident’ that it could secure debt financing to fund the offer and that its largest shareholder, the hedge fund Cerberus Capital Management, has indicated that it is prepared to contribute substantial capital in support of the proposed transaction.
In his letter to DigitalGlobe president and CEO Jeffrey Tarr dated 4 May 2012, GeoEye’s president and CEO Matt O’Connell argued the merger was the best response to the forecast cuts in US government spending, in particular the National Geospatial-Intelligence Agency’s EnhancedView program, which accounts for around 75% of the companies’ revenues.
O’Connell said: “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 both acknowledge that there have been rumours 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.”
GeoEye argued that the combined company would create the world’s largest fleet of high resolution commercial imagery satellites and would be ‘well-positioned to meet the evolving needs of the US government and other customers in this fiscally constrained environment.’
Goldman Sachs and Convergence Advisors are advising GeoEye on its bid, while Latham & Watkins is providing legal advice.
