PARIS — The two principal providers of commercial Earth observation satellite imagery to the U.S. government have agreed to merge in a deal that makes DigitalGlobe the buyer and GeoEye – which had tried to buy DigitalGlobe two months ago – the target, the two companies announced July 23.

Under the terms of the agreement, Longmont, Colo.-based DigitalGlobe will offer shareholders of Herndon, Va.-based GeoEye Inc. the equivalent of $20.32 per share.

That represents a 34 percent increase over where GeoEye was trading on July 20, but a sharp drop from the company’s trading levels before the U.S. government hinted that a $7.3-billion, 10-year contract that the two companies are sharing would be cut substantially.

It was in that environment — with the market unsure of whether the two would suffer equally, or whether one would be favored — that GeoEye made its offer to purchase DigitalGlobe, an offer that was quickly refused.

DigitalGlobe said then that while it agreed with GeoEye that a merged company would be stronger than two, it would await further signals from the U.S. government, and specifically the U.S. National Geospatial-Intelligence Agency (NGA), before entertaining merger discussions.

Since then, the NGA has said it is GeoEye whose contract will be renegotiated at reduced levels, and not DigitalGlobe’s, at least not for the coming fiscal year.

The U.S. Congress is now reviewing the proposed fiscal-year 2013 budget sent to it by President Barack Obama. Some in Congress have said cuts to the 10-year contract, called EnhancedView, should await a through review of the future U.S. government need for commercial satellite imagery.

DigitalGlobe said it has secured a $1.2 billion funding facility from Morgan Stanley and The Bank of Tokyo-Mitsubishi UFJ to refinance the combined debt of GeoEye and DigitalGlobe.

GeoEye’s largest shareholder, Cerberus Capital Management — which had proposed to help finance a GeoEye takeover of DigitalGlobe — has agreed to vote in favor of the proposed merger, the two companies’ statement said.


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Peter B. de Selding was the Paris bureau chief for SpaceNews.