Canada's MacDonald Dettwiler and Associates Ltd (MDA.TO) said it would buy U.S.-based satellite imagery provider DigitalGlobe Inc (DGI.N) for about C$3.10 billion ($2.40 billion), the biggest deal yet in a fast-consolidating earth-imaging satellite market.
DigitalGlobe's satellites supply high-resolution images to its customers such as the U.S. Department of Defense and companies including Facebook Inc (FB.O) and Uber Technologies Inc [UBER.UL].
MDA, which manages satellites for surveillance, direct-to-home television, satellite radio and mobile communications, said DigitalGlobe shareholders will get $17.50 in cash and 0.3132 of its shares for each share held.
MDA said the offer translates to $35 per share based on its stock's closing pricing on Feb. 16, before reports of a potential deal emerged. The offer represents a premium of 2.8 percent to DigitalGlobe's Thursday close of $34.05.
Shares of DigitalGlobe were trading down 7.5 percent at $31.50 on Friday, while MDA's shares were down 4.2 percent at C$64.77.
Investors had expected a premium from the stock's Thursday close and not a premium based on the stock's close before reports of a potential deal, Ashwini Birla of Dougherty & Co LLC said.
"I am guessing DigitalGlobe investors are exiting gracefully."
The deal includes assumption of DigitalGlobe's debt of C$1.60 billion and is expected to close in the second half of 2017.
The acquisition of DigitalGlobe is the largest so far in the ongoing consolidation of the Earth-imaging industry.
Commercial remote sensing company Planet Labs, a privately owned San Francisco startup, said earlier this month it would buy competitor Terra Bella from Google's parent company, Alphabet Inc (GOOGL.O), for an undisclosed sum.
Planet Labs expects to add Terra Bella's seven high-resolution imagers to its 149-member network after the deal closes later this year, Will Marshall, co-founder and chief executive of Planet, told Reuters last week.
The constellation includes five satellites acquired in 2015 by Planet's purchase of the Berlin-based BlackBridge Corp, one of the eight commercial satellite imaging networks in operation, according to a 2016 Satellite Industries Association study.
MDA, which restructured its U.S. operations in 2016, said it would apply to list on the New York Stock Exchange as well and look to incorporate the ultimate parent of DigitalGlobe in the United States by the end of 2019.
"The transaction is a major step forward in our previously announced U.S. Access Plan," MDA's Chief Executive Officer Howard Lance said in a statement.
"We are committed to serving the U.S. Government as a mission-critical partner with an expanded portfolio of end-to-end solutions," said Lance, who will lead the combined company.
DigitalGlobe, which will remain headquartered in Westminster, Colorado, gets over 62 percent of its revenue from contracts with the U.S. government.
Analyst Bill Baker of Garp Research & Securities, however, said it seemed "strange that an asset so important to the United States would be sold to a foreign company".
The deal terms provide for MDA paying a reverse termination fee of $150 million to DigitalGlobe if the deal is blocked by the Committee on Foreign Investment in the United States (CFIUS), or by any government agency.
The CFIUS is a government panel that scrutinizes deals over possible security concerns.
The companies will pay a termination fee of $85 million if either of them end the deal.
DigitalGlobe in 2014 used crowdsourcing to search for a missing Malaysia Airlines jetliner, inviting internet users to comb through satellite images of over 1,200 square miles (3,200 square km) of seawater for signs of wreckage.
MDA said the deal is expected to bring C$75 million-C$150 million in run-rate synergies by 2019 and add to its operating earnings per share in 2018.
BofA Merrill Lynch is the financial adviser to MDA, while PJT Partners and Barclays are advising DigitalGlobe.
(Reporting by Narottam Medhora and Aishwarya Venugopal in Bengaluru; Additional reporting by Irene Klotz in Cape Canaveral, Fla.; Editing by Shounak Dasgupta and Sriraj Kalluvila)