Why GeoEye and DigitalGlobe Both Soared

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 both GeoEye (Nasdaq: GEOY  ) and DigitalGlobe (NYSE: DGI  ) both soared today, up by 35% and 12% at their respective highs, after DigitalGlobe agreed to acquire Geoeye.

So what: The deal is valued at $900 million and will create the largest satellite-imagery company in the world. That price also puts a 34% premium on GeoEye shares. By acquiring GeoEye, DigitalGlobe will diversify its business away from government contracts, which have been the bulk of sales.

Now what: DigitalGlobe CEO Jeff Tarr will lead the combined company, and he expects the transaction to close later this year or early next year. The combined company will retain the DigitalGlobe name. Interestingly, DigitalGlobe had previously spurned a takeover offer from GeoEye for roughly $800 million. Cost-saving synergies are valued at $1.5 billion over two years. Sector consolidation is the name of the game.

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Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of GeoEye. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


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