General Dynamics Corporation (GD) has entered into a definitive agreement with Force Protection Inc. (FRPT) under which the former will acquire the latter for a price of $5.52 per share of common stock, or approximately $360 million.
Force Protection designs, manufactures, tests, delivers and supports its blast- and ballistic-protected products to increase survivability for users. It provides survivability solutions to support the armed forces of the United States and its allies. Its specialty vehicles – including the Buffalo, Cougar and Ocelot – are designed specifically for reconnaissance and urban operations and to protect their occupants from landmines, hostile fire and improvised explosive devices.
Post acquisition, Force Protection will become a part of General Dynamics Land Systems, the Sterling Heights, Michigan-based designer and manufacturer of Abrams main battle tanks and Stryker infantry combat vehicles.
The proposed acquisition has been approved by the board of directors of each company. Per the agreement, General Dynamics will commence a tender offer for all of the outstanding shares of common stock of Force Protection. Force Protection's board of directors has resolved to recommend that Force Protection stockholders tender their shares into the tender offer in accordance with the terms of the merger agreement. The transaction is expected to be accretive to General Dynamics' earnings in 2012.
The acquisition will complement and strategically expand General Dynamics' armored vehicle business and will also add new products to the expansive portfolio of combat vehicles. Moreover, Force Protection's skilled workforce will provide high-quality support and sustainment services to an installed fleet of approximately 3,000 vehicles. Also, with this acquisition, the company will have new opportunities to serve domestic and international customers alike.
General Dynamics continues to benefit from strong congressional support for its programs in the 2011–12 defense budgets.Looking forward, key drivers include the reviving fortunes for the business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog, as well as the recent G650 crash and risks related to the execution of key projects.
Recently, in October, General Dynamics announced third-quarter 2011 operating earnings of $1.83 per share, which surpassed the Zacks Consensus Estimate of $1.77. The results of the company were 13 cents ahead of the year-ago figure of $1.70 per share.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation.
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