13D Filing: Edenbrook Capital, Llc and Digitalglobe Inc. (NYSE:DGI)

Despite all of these accomplishments and potential for future success, the Company has a current enterprise value that is below where it was before the GeoEye acquisition, before the launch of either WorldView-3 and WorldView-4 and before the Company initially launched its share repurchase program, which on your second quarter 2014 earnings call you said was being done to “maximize shareowner value.” How does this valuation therefore fairly reflect all that the Company has accomplished?

We believe that DGI’s assets, including its image library and competitive positioning, should give it meaningful scarcity value, and don’t think that this valuation remotely reflects this franchise value. The multiple of enterprise value to EBITDA implied by the MDA acquisition is slightly over 8x. U.S. defense contractors are trading at 12.5x EBITDA. In other words these companies are trading at more than four turns above the multiple at which DGI is transacting, not only undervaluing the current business, in our opinion, but also not offering any control premium for a private market transaction. With each turn of EBITDA being worth approximately $6.50 per share of DGI, these four additional turns in a comparable company would be worth an additional $26 per share, more than 80% above the current DGI price. Information services companies, to which the Company has long compared itself, trade several turns above defense contractors, suggesting even more upside potential. Transaction multiples for information services business have been in the 16-20x EBITDA level in recent years, more than double the valuation  implied by the MDA offer.

Even MDA, which compared to DGI is a lower margin, lumpier, highly leveraged (and becoming more leveraged) company, trades at 10.5x EBITDA. How could DGI not be worth at least the valuation of its proposed acquiror, given the superior quality of DGI’s business? Just those additional two turns of EBITDA would be worth another $13 per DGI share, more than 40% above the current DGI price.

What’s more, per the terms of the deal, DGI shareholders are being asked to accept half of the consideration in cash and half in stock. After years of DGI management telling shareholders how valuable it was to be increasing recurring revenue, expanding margins and deleveraging, why would those same shareholders want to exchange their stock for that of the complete reverse, a lumpy, lower margin, re-leveraging company? Ordinarily, we would expect that in order to be asked to take a lower valuation, we would be getting our consideration entirely in cash. Or, if we were being asked to accept the stock of a lower quality business, that we would be doing so at a valuation much higher than that of competitors, let alone that of the acquiror itself. Instead, we are being offered a low valuation and stock in a lower quality business.

Further, because the acquiror is Canadian, we are being asked to accept additional risks associated with regulatory approval, foreign exchange and potential protectionist policies from the new administration. A full price could provide some compensation for these potential risks, but as stated above, we don’t believe it is fair, and given the highly leveraged balance sheet of MDA, we don’t think they can offer much more in cash.

Although DGI is trading at over 2.5x where it was 14 months ago, that doesn’t mean that this transaction represents fair value. In our opinion, last year the stock simply traded down to a ridiculously low valuation and has rebounded to now just being cheap, as compared to values implied by its historical valuation levels, comparable companies and private market transactions (by a lot).

DGI management and the board have done many things historically that are shareholder friendly, and have long espoused the importance of maximizing shareholder value. After so much success in building this company, why would you fall short now, in your final opportunity to truly maximize value? We do