GeoEye Offers $792 Million to Acquire Rival DigitalGlobe

GeoEye Inc. offered to buy DigitalGlobe Inc. for about $792 million, to create the world’s largest commercial-imagery satellite company and help cope with U.S. defense budget cuts.

The $17-a-share proposal consists of $8.50 in cash and 0.3537 share of GeoEye for each DigitalGlobe share, Herndon, Virginia-based GeoEye said today in a statement, calling the move “friendly.” The offer -- 26 percent higher than DigitalGlobe’s closing price yesterday -- is flexible, as GeoEye is willing to adjust the cash and stock mix, Chief Executive Officer Matt O’Connell said in an interview.

A combination would enable the companies to cut costs and better manage reductions in spending on intelligence agencies by governments, their biggest clients. President Barack Obama’s administration asked Congress for $71.8 billion for such agencies next year, according to the Defense Department and the Office of the Director of National Intelligence. That’s about $6.8 billion less than funding in 2011.

“If we put these companies together, not only do we save money for the government, but we make it more efficient for these companies to work together with the government,” O’Connell said.

GeoEye rose 3.3 percent to $24.83 at the close in New York and has gained 12 percent this year. DigitalGlobe, based in Longmont, Colorado, jumped 22 percent to $16.44, and has fallen 3.9 percent this year.

‘Carefully Review’

The board will “carefully review and consider the proposal,” DigitalGlobe said in a statement. Morgan Stanley and Barclays Plc are advising the company, while Skadden, Arps, Slate, Meagher & Flom LLP is providing legal counsel.

Goldman Sachs Group Inc. and Convergence Advisors LLC are providing GeoEye with financial advice and the company said it’s getting legal counsel from Latham & Watkins LLP.

DigitalGlobe has about 46.6 million shares outstanding, bringing the total offer to about $792 million, based on yesterday’s closing price for GeoEye.

Cerberus Capital Management LP, GeoEye’s largest shareholder, may increase its holding if a deal happens, O’Connell said. Stephen Feinberg, the CEO of Cerberus, holds a 21 percent stake in GeoEye, according to data compiled by Bloomberg.

“They stepped up and said we’ll help you structure this and if you need cash we’ll put up some capital,” GeoEye’s O’Connell said.

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