Canadian satellite technology firm MacDonald Dettwiler & Associates Ltd. agreed to acquire DigitalGlobe Inc. in a cash and stock deal worth C$3.1 billion ($2.4 billion), doubling the company’s size and giving itself new access to lucrative U.S. government customers.
DigitalGlobe shareholders will receive $17.50 in cash and 0.3132 MDA shares representing a premium of about 18 percent of the company’s closing share price on Feb. 16, according to a statement Friday. MDA will also assume about C$1.6 billion of Westminster, Colorado-based DigitalGlobe’s debt. DigitalGlobe’s shares fell 8.2 percent to $31.25 at 4 p.m. in New York. MDA dropped 7.3 percent to C$63.96 in Toronto, its biggest drop since November, dragged down by dilution concerns to fund what would be MDA’s biggest purchase to date.
The deal consolidates two of the industry’s older and bigger players as new upstarts such as San Francisco-based Planet Labs Inc. try to stake out a position in the growing market for images of Earth. DigitalGlobe, Planet Labs and Vancouver-based UrtheCast Corp. are in a space race to provide the best images for a growing list of customers, from forest managers tracking wildfires to financial analysts who want to predict Wal-Mart’s quarterly revenue based on how many cars were parked at its stores.
Combining DigitalGlobe’s satellites and expertise in analyzing images with MDA’s ground stations and communications tech will allow the two to offer more services at better prices, said Eric Gundersen, chief executive officer of mapping startup Mapbox, which buys images from DigitalGlobe.
“The economic efficiencies of the deal will drive cheaper imagery,” Gundersen said.
Getting into value-added services, like analyzing images rather than just taking them, is a key reason MDA is merging with DigitalGlobe, MDA Chief Executive Officer Howard Lance said in an interview with Bloomberg TV Canada.
The deal helps “boost our position with the U.S. government space market, which is the largest market globally,” Lance said.
Lance will lead the new company while the DigitalGlobe brand and headquarters in Westminster will be maintained. The combined operations will have about 4,600 employees in the U.S. and continue to employ about 1,800 in Canada. The entire company will be incorporated in the U.S. by the end of 2019, a further step in MDA’s plan to position itself to win more U.S. government contracts.
“A transformational deal of this magnitude raises leverage concerns,” Stephanie Price, an analyst with CIBC World Markets, said in a note to clients. The higher leverage ratio might prompt an equity raise of more than $1 billion, she said.
The transaction has the unanimous support of both boards and is subject to standard approvals, according to the statement. It’s expected to close in the second half of 2017. MDA will also apply to list its shares on the New York Stock Exchange as well continuing in Toronto.
Bank of America Corp., Royal Bank of Canada, and Bank of Montreal provided financial advice to MDA while Vinson & Elkins and Stikeman Elliot provided legal advice. PJT Partners Inc. and Barclays provided financial advice to DigitalGlobe while O’Melveny & Meyers provided legal advice.