In May this year two companies worth a combined $1.23 billion in market capitalization tendered hostile bids to buy each other. The bids were rejected, and confidential talks between the companies broke down in a rather unusual exchange of accusatory letters. One of the companies even highlighted weaknesses it saw in the other company’s SEC filing.
The two companies, DigitalGlobe and GeoEye, are key providers of satellite imagery to the United States intelligence community. They are also the subject of a paper I am writing with two colleagues, Sue Roberts and Ate Poorthuis at UKY on the intelligence contracting industry.
At 8:30am this morning the two companies held a conference call to announce that DigitalGlobe was buying GeoEye. This means that there is now only one company (DigitalGlobe) building spy satellites in the USA. There is now effectively a monopoly on spy satellites. As of 10:30am DGI stock was down about 1%.
According to slides released by DGI, the new company will be 2:1 owned by DigitalGlobe stock holders and the CEO will be Jeffrey R. Tarr, the current DGI CEO. The deal will close late 4Q 2012 or early 1Q 2013 and will need stockholder and regulatory approval.
The other wrinkle in this situation is that in the fall of 2010 the NGA awarded a huge $7.3 billion contract to the two companies, to be played out over ten years. Earlier this year NGA indicated it wasn’t going to fully fund this year’s award to GeoEye and clearly both companies saw the writing on the wall (they receive the majority of their earnings from government contracts as we discuss in the paper). Hence the attempted hostile take-overs earlier this year.
The press announcement also appears to indicate that satellite production will be slowed–both satellites currently under construction (1 per company) will be completed, but only one launched in “2013-14” (previously GeoEye was going to launch in early 2013) while the other will serve as a “ground spare” until launch as late as 2016-2018.
We will see what this means for the IC and for contracting. It is interesting to note however, that the market for remote sensed imagery is contracting at a time when the IC is placing increased emphasis on “cultural awareness” and “socio-cultural analysis ” (SCA). We’re not claiming that one is driving the other, but in our analysis of geographical intelligence, RS and the “human terrain” are clearly undergoing significant shifts. Today’s market contraction of RS underlines this.