GeoEye Bids to Acquire DigitalGlobe; EnhancedView Funding OK for 2012-UPDATE
UPDATE: A quote from and a link to DigitalGlobe's response to GeoEye's proposal replaces an earlier quote from the Wall Street Journal.
Chris Quilty, Senior Vice President for Equity Research at Raymond James & Associates, reports that GeoEye is making a bid to buy rival DigitalGlobe. GeoEye also said that its deal with the National Geospatial-Intelligence Agency (NGA) for imagery under the Enhanced View contract will be fully funded for 2012. Rumors that NGA is going to cut funding substantially for Enhanced View have been rampant for months.
Quilty's report reflects a GeoEye press release today announcing that the company is proposing to purchase DigitalGlobe for $17 per share, a 26 percent premium to DigitalGlobe's closing share price yesterday. Quilty notes that DigitalGlobe has rejected previous bids, but the fundamental issue is whether the government would approve a merger of the only two companies that provide commercial satellite imagery. "The government has made great efforts to ensure a competitive market for weapon systems and services, often creating a 'managed duopoly.' ... This desire ... could prove to be a major hurdle to regulatory approval, even if the benefits ... are tangible and significant," he said.
The GeoEye press release included the text of its letter to DigitalGlobe President Jeffrey Tarr. DigitalGlobe released a statement saying that its Board of Directors "will carefully review and consider the proposal and pursue the course of action that is in the best interests of DigitalGlobe and its stockholders."
GeoEye separately said that NGA notified the company that it would get full funding of its Enhanced View contract for the 2012 contract term and that development of its GeoEye-2 satellite is "on time and on budget for a launch in the first half of 2013."
DigitalGlobe similarly reported earlier this week that NGA said it would fully fund their Enhanced View contract as well for 2012. DigitalGlobe will get $250 million while GeoEye will receive $111 million according to their respective press releases.
Rumors that NGA is planning to cut funding for Enhanced View have been widespread for several months and the companies' announcements are for 2012 only. An April 19 New York Times story portrays the underlying issue as a "clash" between the military and the intelligence community. It quotes GeoEye official Bill Wilt as saying "[t]he debate is really between the military, which needs a lot of imagery but doesn't need the highly classified imagery, and the intelligence community, which wants to keep the capability to produce its own imagery."
The National Reconnaissance Office (NRO) builds and operates the government satellites that provide the highly classified imagery. Its director, Bruce Carlson, announced his resignation on April 18. He and National Intelligence Director James Clapper reportedly advocated less reliance on commercial imagery. Betty Sapp, currently NRO's principal deputy director, already has been named to replace Carlson.
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