GeoEye faces funding cuts from U.S. government

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(Global Markets) - Satellite imagery provider GeoEye Inc (GEOY.O) said the U.S. National Geospatial Intelligence Agency (NGA) will not renew the EnhancedView contract with it for the full year due to budget constraints.

The intelligence agency proposed an option under which GeoEye will get service revenue of $39.75 million for the three month ending November 2012, and a nine-month option providing for $119.3 million, contingent on funding.

The government agency also decided not to provide additional funding for GeoEye's satellite beyond $181 million provided for in the contract, the company said in a regulatory filing.

The company has so far invoiced $111 million to the agency and expects that payment in the next 30 days. The NGA proposed new milestones for payment of the remaining $70 million.

GeoEye's rival DigitalGlobe Inc (DGI.N) said earlier this week that the NGA plans to renew its EnhancedView contract for the third year.

Friday's news can decide the fate of consolidation in the commercial satellite imagery industry.

U.S. government officials earlier said the NGA plans to sharply reduce, and possibly halve, its plan to buy $7.3 billion of digital imagery from the two companies, sparking speculation about a consolidation.

GeoEye offered to buy larger rival DigitalGlobe for $792 million in May. But DigitalGlobe rejected the offer, saying it would fare better than GeoEye in the expected round of budget cuts and would wait for the decision on EnhancedView contract to take the next step.

Both DigitalGlobe and GeoEye provide digital imagery services to U.S. military and intelligence agencies and are working on next-generation satellites to double their capacity.

Shares of GeoEye fell 5 percent to $17.39 in after-market trading. They closed at $18.34 on the Nasdaq on Friday.

(Reporting by A. Ananthalakshmi and Kartick Jagtap in Bangalore; Editing by Joyjeet Das)