Longmont, CO-based DigitalGlobal and Herndon, VA-based GeoEye (News - Alert) announced today a definitive merger agreement. When the smoke clears, the new DigitalGlobal will be worth $900 million, with strengths in earth imagery and geospatial analysis.

Under the agreement, GeoEye shareholders can select 1.137 shares of DigitalGlobal common stock and $4.10 per share in cash, $20.27 in cash or 1.425 shares of DigitalGlobal stock for each share of GeoEye they own. 

After the transaction is complete, DigitalGlobal shareholders are expected to own around 64 percent of the company, while GeoEye shareholders will own 36 percent of the combine company.

DigitalGlobal will continue to keep its headquarters in Colorado, have a "large and important presence" in Missouri and Virginia, and maintain offices in other locations around the world.

The deal is being promoting as having "substantial synergy" and a "compelling solution for the U.S.  Government," according to a DigitalGlobe (News - Alert) news release. 

A combine DigitalGlobal will have a revenue base of over $600 million after adjusting for lower U.S. government FY 2013 funding.  It would have a constellation of five earth observation satellites and a "broad suite" of geospatial production and analytic services.

Over time, the company would maintain what it calls an "optimized" three-satellite constellation that would meet the needs of the U.S. government – its anchor and primary customer – international governments, and commercial customers while delivering better returns to shareholders. 

Future savings from operations is estimated to be more than $1.5 billion.

In the 2013 defense budget request, the Obama administration planned to cut the 10-year, $7.3-billion program in half. DigitalGlobal says the new company will meet the requirements for its Enhanced View imagery program at "substantial savings," but there are few places where government contractor consolidation has provided long-term savings. 

DigitalGlobal and GeoEye currently provide imaging to the National Geospatial-Intelligence Agency, with the two companies effectively splitting the Enhanced View contract funds.

It isn't clear what the government's position is regarding the merger, but one of the initial intents of Enhanced View was to have a pair of commercial companies offering services. Advocates for the merger could argue emerging commercial services based on smaller satellites could offer sufficient competition in the future to permit the current merger.

Skybox Imaging plans to its first two imaging satellites into orbit late this year, with each satellite capable of resolution up to one meter. It's not as sharp as the sub-meter images DigitalGlobal and GeoEye's satellites are capable of taking, but for many applications, one meter resolution is fine.

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