News quickly broke that the government was planning to reduce by half the 10-year, $7.3 billion Enhanced View program under which the government funds commercial satellites and buys their imagery.
The administration said the remaining funds would still boost U.S. imaging capability in the coming years, but the news was of no solace to GeoEye of Dulles, Va., and DigitalGlobe of Longmont, Colo., which operate competing constellations of imaging satellites.
GeoEye, for example, reports that 66 percent of its first quarter 2012 revenue came from sales to the U.S. government. The company would receive $3.82 billion over the course of the Enhanced View program, and Digital Globe was to receive $3.55 billion. The money would aid the companies’ plans to add new satellites to their imaging constellations.
GeoEye’s reaction was the boldest among the two companies. It reached out to the media, but it also quietly started merger negotiations with DigitalGlobe in hopes of avoiding a competition over a smaller pie. Those talks broke down after several months, and a series of dueling press releases ensued.
On May 4, GeoEye revealed the failure of the secret negotiations over PRNewswire, and sent CEO Matthew O’Connell into a teleconference with analysts to announce that GeoEye would now seek to acquire DigitalGlobe.
On May 6, DigitalGlobe announced that its board of directors had unanimously rejected the hostile takeover attempt, saying it “substantially undervalues” the company.
On May 7, O’Connell issued a statement expressing disappointment at DigitalGlobe’s rejection of what he called “our highly attractive proposed acquisition.” O’Connell said a combined company “would generate substantial synergies while better satisfying the needs of all customers, domestic and international.”
The events mark a dramatic break from the industry’s optimism in 2009, when the Obama administration announced an ambitious plan to buy two additional fine resolution imaging satellites for the National Reconnaissance Office and underwrite construction of two additional commercially owned satellites, a decision that was dubbed the “2 + 2” plan.
DigitalGlobe and GeoEye felt reassured that there would be a long-term successor to a project called NextView, under which they were providing imagery to the government. The successor was to be Enhanced View.
After the administration released its priorities document, news broke that the Enhanced View cuts would be around 50 to 52 percent. The National Geospatial-Intelligence Agency, which launched Enhanced View in September 2010, has not disputed the reports, but it can’t say much because the details of the intelligence budget are classified. The Enhanced View agreements with DigitalGlobe and GeoEye, however, are public.
Under Enhanced View, GeoEye is using the first funds to build GeoEye 2, which is scheduled for launch by the first half of 2013. DigitalGlobe plans to launch WorldView-3 in 2014.
If the Enhanced View decision stands — there is some question because of an unusual post-decision review undertaken by intelligence officials for the White House Office of Management and Budget— the fallout could extend beyond Digital Globe and GeoEye to the entire concept of public-private partnerships, one industry executive said.
“It really undermines the confidence of the satellite providers because these are guys that looked like they’d figured out how to do this between NGA, and GeoEye and DigitalGlobe,” said Tip Osterthaler, president and CEO of SES World Skies US Government Solutions, which sells commercial satellite capacity to the government. “It looked like a real public-private partnership, or about as close as we ever get to one in the U.S.
“It turns that partnership doesn’t mean very much for the U.S. government.”
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