The takeover target becomes the acquirer. In a change of roles from just two months ago, DigitalGlobe Inc (NYSE:DGI) has agreed to acquire GeoEye Inc. (NASDAQ:GEOY) in a $900 million deal in which every GeoEye share will receive either 1.137 shares of DigitalGlobe common stock plus $4.10 in cash, or $20.27 in cash and 1.425 shares of stock.
The companies are the two main providers of commercial Earth satellite imagery to the U.S. government. The merger will create the biggest commercial-imagery satellite company globally. It may be recalled that in May GeoEye made an offer to acquire DigitalGlobe for about $792 million, which fell through after negotiations.
DigitalGlobe seems to be calling the shots in the deal as the merged organization will carry the DigitalGlobe name, and its shareholders will effectively hold about 64 percent of the new entity. Cerberus Capital Management, the largest shareholder in GeoEye, who had in fact offered to help finance the still-born takeover of DigitalGlobe by GeoEye, has blessed the deal, according to the statement by the two companies. The combined company will be led by DigitalGlobe Chief Executive Officer Jeff Tarr.
According to DigitalGlobe, the merger will result in net future savings of almost $1.5 billion and that the “majority of these savings is not people related.” The merger will also enable DigitalGlobe to reduce its dependence on the U.S. government – the share of government in the combined company’s revenues will be roughly 50 percent, compared to the present 63 percent of DigitalGlobe’s stand-alone sales. “The combined business will be more diversified than either company is today,” DigitalGlobe Chief Executive Officer Jeff Tarr said.
A $1.2 billion funding facility from Morgan Stanley (NYSE:MS) and The Bank of Tokyo-Mitsubishi UFJ has been arranged by DigitalGlobe, in order to refinance the combined debt of the merging companies. Currently, DigitalGlobe is working to complete two new satellites, namely, GeoEye2 and WorldView-3, one of which would be launched in 2013 or 2014, and the other later in the decade.