GeoEye, Inc. (NASDAQ: GEOY) (“GeoEye”) wished to acquire the Company for $17.00 per share in a combination of cash and stock. Consistent with its fiduciary duties and in consultation with its independent financial and legal advisors, the DigitalGlobe Board of Directors reviewed GeoEye‘s unsolicited acquisition proposal and unanimously determined that it substantially undervalues the Company in relation to DigitalGlobe’s standalone business and financial prospects, and is not in the best interests of the Company’s stockholders. In addition, the Board determined that GeoEye’s proposal does not adequately recognize DigitalGlobe’s superior track record of financial and operating performance as well as its constellation’s greater capabilities.
DigitalGlobe noted that GeoEye made previous private unsolicited proposals, beginning on February 7, 2012, which the Company believes were motivated by GeoEye’s concerns with the disproportionate risks of government budgets cuts affecting its business. DigitalGlobe rejected those proposals, but was willing to discuss DigitalGlobe acquiring GeoEye, and proposed a transaction under which DigitalGlobe’s stockholders would own approximately 60 percent and GeoEye stockholders would own approximately 40 percent of the combined company, with DigitalGlobe’s Chairman and Chief Executive Officer continuing in their respective leadership roles. DigitalGlobe terminated those discussions because the Company believed that the U.S. Government process would be favorable to DigitalGlobe, and that protracted discussions would be disruptive to the U.S. government in its decision-making process as well as create needless distraction to ongoing mission performance.
Following GeoEye’s public hostile offer last Friday, DigitalGlobe again made the same proposal for the Company to acquire GeoEye, conditioned on reaching agreement over the weekend. Given GeoEye’s rejection of that proposal, DigitalGlobe terminated discussions and will await the government reaching its budget decision regarding EnhancedView. When the government reaches its decision, DigitalGlobe will consider whether to make a proposal to acquire GeoEye.
“DigitalGlobe has consistently demonstrated superior operating performance compared to GeoEye, including the stronger relative performance on the EnhancedView program,” said Jeffrey R. Tarr, President and Chief Executive Officer of DigitalGlobe. “DigitalGlobe is the only provider in the industry with a constellation of three healthy on-orbit high resolution satellites, which allows us to deliver vastly more imagery to NGA than GeoEye, both in total and per-taxpayer dollar, generating significant value for the government and taxpayers. We are enthusiastic about our prospects and the opportunities before us, and our ability to successfully execute on our strategic plan to create value for our customers and shareowners.”
Mr. Tarr continued, “Given the abruptness of GeoEye’s most recent proposal and the companies’ past discussions, we believe GeoEye made its hostile bid in desperation due to highly publicized concerns about potential government decisions that may jeopardize their portion of the EnhancedView program. Although we continue to believe there are merits to an acquisition of GeoEye, we believe that it is in the best interests of DigitalGlobe’s shareowners and all of our customers to await the conclusion of the government budget decision process and to gain clarity with respect to EnhancedView funding.”
The full text of the letter sent today to Matthew M. O’Connell, Chief Executive Officer of GeoEye, follows:
May 6, 2012
Mr. Matthew M. O’Connell President and Chief Executive Officer
GeoEye, Inc. 2325 Dulles Corner Blvd Herndon, VA 20171
Dear Matt:
We are writing in response to GeoEye’s unsolicited conditional “public offer” to acquire DigitalGlobe made in your letter dated May 4, 2012. Our board of directors has met, has carefully considered your proposal and has concluded that GeoEye’s proposal is not in the best interests of DigitalGlobe and its shareholders. Accordingly, DigitalGlobe rejects your offer. Given the abruptness of your “public offer” and our past discussions, we believe you made your hostile bid in desperation due to well-publicized concerns about potential government decisions that may jeopardize your portion of the EnhancedView program.
We believe you initiated discussions with us with your unsolicited highly conditional private offer on February 7, 2012 because you were concerned about a disproportionate risk of budget cuts affecting GeoEye. We believe you have mischaracterized subsequent discussions in your May 4 letter as well as during your Friday investor call. In fact, we believe your public description of such discussions in your May 4 letter is materially misleading and incomplete.
Moreover, before we terminated discussions of a potential combination to await the government’s funding decision, the proposed transaction we were discussing contemplated that DigitalGlobe would designate a majority of the Board and that DigitalGlobe’s shareholders would own a substantial majority of the surviving company. Your May 4 letter fails to mention that we proposed to acquire GeoEye in an all-stock transaction on March 2, 2012 and reaffirmed the same offer on April 13, 2012, whereby:
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—DigitalGlobe’s shareholders would own 60% and GeoEye’s shareholders would own 40 percent of the combined company;
—DigitalGlobe would control a majority of the Board; and
—DigitalGlobe’s Chairman and CEO would continue in their respective leadership roles of the combined company.
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The strength of DigitalGlobe’s constellation of three healthy on-orbit high resolution satellites
DigitalGlobe’s differentiated capabilities, which allow us to deliver vastly more imagery to the National Geospatial Intelligence Agency (“NGA”) than GeoEye, both in total and per-taxpayer dollar, generating significant value for the government and taxpayers
DigitalGlobe’s superior current collection and delivery capabilities, which enable it alone to provide substantially all of what NGA is currently receiving from both companies under EnhancedView at substantially lower cost
The superior performance of DigitalGlobe on the EnhancedView program, as indicated by the repeated, large holdbacks you have incurred against your Service Level Agreement (“SLA”)—which we believe may indicate significant shortfalls in performance against NGA’s requirements; and
DigitalGlobe’s dramatically higher organic growth as evidenced by our 1Q 2012 revenue growth rate of 12 percent, compared to only 3 percent for GeoEye
We expected the budget process outcome would be favorable to DigitalGlobe and its shareholders and believed that protracted discussions between our companies at that time would be disruptive to the U.S. government in its decision-making process as well as create needless distraction to ongoing mission performance.
Therefore, we were surprised by your most recent unsolicited “public offer” given GeoEye’s continued government funding uncertainty. You even acknowledged in your Form 10-Q filing on May 4, 2012 that “management foresees continued uncertainty” regarding funding of your cost share payments beyond the amount to which the NGA is currently obligated. Based on your cost share disclosure, May 4, 2012 earnings call and unsolicited bid, we are concerned about your overall EnhancedView program funding.
In response to your hostile “public offer,” on May 4, 2012, in our May 5, 2012 letter to you we again reiterated our interest in an acquisition of GeoEye on the terms substantially similar to those we previously offered to you. Unfortunately, in discussions between counsel on May 5, 2012, you again rejected our proposal. We continue to believe there are merits to a potential acquisition of GeoEye, but at this time, we also believe that it is in the best interests of DigitalGlobe’s principal constituencies, including our shareholders and all of our customers, to await the conclusion of the government budget decision process and to gain clarity with respect to EnhancedView funding. When the government reaches its decision, DigitalGlobe will consider whether to make a proposal to acquire GeoEye.
Sincerely,
/s/ Jeffrey R. Tarr
/s/ Gen. Howell M. Estes III
Jeffrey R. Tarr — Gen. Howell M. Estes III (USAF, Ret.)
President and Chief Executive Officer Chairman of the Board
DigitalGlobe, Inc.
DigitalGlobe, Inc.
Skadden, Arps, Slate, Meagher & Flom LLP is serving as DigitalGlobe’s legal counsel, and Morgan Stanley and Barclays are serving as DigitalGlobe’s financial advisors.
GeoEye’s official response to the DigitalGlobe letter is as follows…
GeoEye (NASDAQ: GEOY) released the following statement in response to the announcement by DigitalGlobe, Inc. (NYSE: DGI) that its Board of Directors has rejected GeoEye’s acquisition proposal. On May 4, 2012, GeoEye announced a proposal to acquire DigitalGlobe for $17.00 per share in total consideration, payable $8.50 per share in cash and $8.50 in GeoEye stock, or 0.3537 shares of GeoEye stock for each share of DigitalGlobe stock, representing a premium of 26 percent to DigitalGlobe’s closing price as of May 3, 2012.
“We are disappointed that DigitalGlobe’s Board of Directors has rejected our highly attractive proposed acquisition,” said Matt O’Connell, CEO of GeoEye. O’Connell continued, “We believe, and DigitalGlobe appears to agree, that combining these two companies makes clear strategic sense. A combined company would generate substantial synergies while better satisfying the needs of all customers, domestic and international. The combined company would be able to deliver significantly greater certainty in the continuity and quality of its future satellite constellation. We view this proposal as being proactive to continue to deliver the high level of service to our government and commercial clients in the most cost effective manner.
“GeoEye will consider its options in light of DigitalGlobe’s rejection. We have engaged Goldman, Sachs & Company, Convergence Advisors LLC and Latham & Watkins LLP to advise us in this transaction.”
