General Dynamics Corporation (GD) has entered into a definitive agreement to acquire Fortress Technologies, Inc. following approval of the boards of directors of both the companies. The transaction is expected to be completed in the third quarter of 2011.
Based in Westford, Massachusetts, Fortress Technologies, Inc. provides networking equipment and produces a portfolio of mesh networking products that enables secure wireless local area network capabilities for battlefield logistics, convoy, command post and soldier applications.
Its products help in improving soldiers' combat effectiveness and survivability by increasing their access to information. It provides technology across the federal market to customers including the U.S. Marine Corps, the Navy, the National Guard, combatant commands and the Department of Energy.
Post acquisition, Fortress Technologies will be managed by General Dynamics’ business wing C4 Systems, which is based in Scottsdale, Arizona. General Dynamics C4 Systems designs, manufactures and delivers trusted and secure communications systems, command and control systems and operational hardware to customers within the U.S. Department of Defense, the intelligence community and federal civilian agencies, and to international customers.
The acquisition is expected to enhance General Dynamics' ability to meet the growing tactical-communications requirements of global defense and civilian agencies, bringing new value to advanced networking solutions. The value of the cash transaction has not been disclosed though it is expected to be accretive to earnings beginning from 2012.
Looking forward, key drivers for General Dynamics include reviving fortunes for the business jet market, its stable business of U.S. military vehicles (Stryker combat vehicles and Abrams tanks), 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 recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based 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. Some of its main competitors are The Boeing Co. (BA) and Lockheed Martin Corporation (LMT).
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