Why DigitalGlobe Shares Popped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of satellite imagery specialist DigitalGlobe (NYSE: DGI  ) surged 14% today after larger rival GeoEye (Nasdaq: GEOY  ) offered to acquire it for about $790 million.

So what: The cash-and-stock offer values DigitalGlobe at $17 per share and represents a 26% premium to its closing price on Thursday. Although DigitalGlobe reportedly rejected the offer, the news itself suggests that the shares are undervalued and also sets the stage for a higher bid.  

Now what: Given the scale and cost benefits that a combined company would generate at a time of significant pressure on the U.S. defense budget, the chances of a deal seem decent. "This proposal represents the most prudent course of action for both GeoEye and DigitalGlobe," GeoEye CEO Matt O'Connell said, "given the continuing uncertainty in the market created by the U.S. government's budget review process for 2013 and beyond." With the shares of GeoEye and DigitalGlobe still down significantly over the past year, taking a small speculative bite into both might not be a bad bet.

Interested in more info on DigitalGlobe? Add it to your watchlist.

Interested in more info on GeoEye? Add it to your watchlist.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Motley Fool newsletter services have recommended buying shares of GeoEye. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.


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