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Cerberus increasing stake in GeoEye

US: In transactions spanning during September 28th to October 12th, Stephen Feinberg’s Cerberus Capital Management purchased USD 31.4 million worth of GeoEye at an average cost of USD 40.78, pushing its total ownership to 6,631,172 shares –a 21 percent stake, Seeking Alpha reports.

The report has tried to read the situation, particularly at a time when the stock is already riched priced at 25 times earnings. According to the report, GeoEye is suddenly moving its headquarters to Herndon, to a corporate office within a mile of the Dulles International Airport. It’s adding 100 more jobs, a near 20% increase in its head count. Recent activities surrounding the company suggest that insiders are preparing either for a buyout or a new threshold of commercial success, as the niche play of geospatial imaging goes global and ubiquitous.

Earlier in March 2010, GeoEye entered into a financing deal with Cerberus Capital Management that provided the satellite imagery company with funds up to USD 215 million. This was to finance its next satellite –Geo Eye 2. The company had just submitted its bid for the Enhanced View contract and with US government less eager to fund more satellite construction, it hoped to convey a measure of self-sufficiency to the feds. Cerberus essentially helped GeoEye win the contract.

So Feinberg knows the company well; he has kicked the tires and seen “under the hood.” And Cerberus is undoubtedly involved in some advisory capacity for GeoEye’s “Next Act.”

What is that Next Act? It could be a buyout. GeoEye has long been on the radar of the big aerospace and defence companies. As a decade of military action in Iraq/Afghanistan winds down, it offers a foothold in a fast-growing market with a wide spectrum of clientele. Some companies mentioned are: L-3 Communications Holdings Inc, Raytheon, Honeywell, Lockheed and even Boeing. Lockheed Martin has worked with the company for years, having designed and launched every GeoEye satellite since IKONOS in 1999.

Earlier this year, Cerberus acquired Dynacorp, the governmental services provider. With 14,000 employees in the Middle East, the contractor is huge in vehicular maintenance, repair, and overhaul (MRO); police training and counter-narcotics operations; and support logistics. So Feinberg might be looking at in-house synergies.

A more integrated use of GeoEye imagery and geospatial metrics would obviously offer a clear benefit to the company’s operational efficiency, as well as its profile under the DoD’s new, rather stringent “Performance Based Logistics” strategy.

Source: Seeking Alpha