The DigitalGlobe Rejection Letter to GeoEye CEO

Recall last week all the buzz in the Geo Tech arena was word of the GeoEye bid of $792 million for DigitalGlobe (See GeoEye Proposes Acquisition Of DigitalGlobe). Well, it seems the Longmont CO based crew at DigitalGlobe weren’t too thrilled with the offer and have not only flat out rejected it but the DigitalGlobe brass have penned a response in writing to them and cc’d the World on it as well – seems DigitalGlobe isn’t too pleased about the previous attempt at them at acquiring GeoEye… one can likely assume that these two companies won’t be holding hands any time soon! And in response to this GeoEye sent out the following… GeoEye Disappointed by DigitalGlobe, Inc.’s Rejection Of the Proposed Acquisition

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:

  • DigitalGlobe’s shareholders would own 60% and GeoEye’s shareholders would own 40% 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.

This structure would maximize value to both sets of shareholders and customers. Furthermore, we believe our proposed structure more accurately reflects the value of DigitalGlobe and recognizes:

  • 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%, compared to only 3% for GeoEye.

Despite the superior benefits to both of our shareholders and customers from our proposal to acquire GeoEye, you rejected our offer both in March and again in April. At that point, recognizing that the federal government was finalizing its budget process, we felt that we should terminate discussions and withdraw our offer.

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.


/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.

See More Details and the public response from DigitalGlobe HERE