In a deal fueled by shrinking military budgets, armored troop carrier Force Protection Inc. is being sold to a much bigger and more diversified player in the defense business.
The company, one of the Charleston region's largest manufacturers, said it agreed Monday to be acquired by General Dynamics Corp.'s Land Systems division for about $360 million in cash.
The deal works out to $5.52 a share, triggering complaints that the Summerville-based business is being sold at a discount. Its stock rose sharply Monday to close at $5.50.
The transaction, which must be approved by shareholders and undergo an antitrust review, is expected to be finalized by the end of the year.
"They bought this for the reason that we do have a valuable business here," said Michael Moody, chairman and chief executive officer of Force Protection.
General Dynamics is not buying the company "to dismantle it or shut it down," Moody said. But how the change in ownership will affect Force Protection's main factory on U.S. Highway 78 in Ladson is unclear.
Moody said "there are some overlapping functions between the two businesses that could lead to targeted cost reductions."
Asked whether General Dynamics could move the local operation elsewhere, he said: "I certainly have had no indication of that."
He also said the companies have not discussed whether he and other top executives will remain after the deal closes.
General Dynamics spokesman Rob Doolittle said "it would just be inappropriate to work on integration issues until the transaction is completed."
For now, Moody said, Force Protection will continue to operate as if no deal had been struck. It is concentrating on filling orders for its blast-proof vehicles and competing for new work, Moody said.
"Everyone is going to be very focused on that," he said.
Ups and downs
Founded about 15 years ago, Force Protection swelled from a $10 million startup with 200 workers in 2004 to a $1.3 billion defense industry with 2,000 employees three years later, driven largely by the wars in Iraq and Afghanistan. In early 2007, it went public and months later announced its biggest contract, a $490 million deal with General Dynamics serving as its joint-venture partner.
But Force Protection struggled to contain that rapid growth spurt and was nearly bankrupt when Moody took over the company in 2008.
In recent years, new management has worked to reposition and diversify the business as vehicle orders have slowed. Its payroll has been trimmed to about 1,100.
While it's a sizable employer at the local level, Moody noted Monday that Force Protection remains relatively small when compared with most of its peers. The financial disadvantage is that the company must invest a higher percentage of its revenue on research and other expenses when competing for contracts.
At the same time, governments worldwide are cutting their military budgets, the bread and butter of Force Protection's business.
"This reduction in defense spending, combined with general national budget uncertainty, presents a challenging environment for smaller companies such as ourselves," Moody said.
He called the unsolicited bid from General Dynamics an "opportunity to be part of a larger organization with more resources and a long-term future."
Analysts asked twice during a conference call if Force Protection had sought out other potential buyers. Moody would not comment.
Internet message boards were buzzing Monday over the price General Dynamics is paying. Some of the comments pointed out that Force Protection was trading at more than $6 about 18 months ago. The stock peaked in May 2007, when it was fetching more than $30.
New York-based Benchmark Co., praised the sale but downgraded Force Protection from buy to hold.
Stock analyst Paul Meeks of Winsor Asset Management's Daniel Island office has been following the vehicle maker for years. He said he has been critical of the company recently for not diversifying quickly away from the defense industry.
Executives at Force Protection "were probably smart to sell," but General Dynamics is getting a bargain, Meeks added.
"I do think the value is pretty cheap," he said.
Garth Barrett, who founded Force Protection and resigned in a 2005 split with management, said shareholders "are taking a bit of a bath," but he thinks the General Dynamics merger is a good move.
"The fact of the matter is they don't have the legs to withstand a serious downturn in the defense spending budget," Barrett said. "I've been sitting here for the past ... year or so thinking, 'How on earth are they going to get out from underneath the clouds they're under?' "
Moody said the buyout offer represents a 30 percent premium to the stock's closing price Friday. He said he would not have recommended that the board approve the sale "if we didn't believe this was a good price."
1997: Force Protection's predecessor is formed.
1999: Force Protection's Technical Solutions Group sets up shop on the former Navy base.
2003: Force Protection moved to the former General Electric plant, a sprawling factory space on U.S. Highway 78 in Ladson.
2004-2006: The company grows from 12 employees to 500 and captures multimillion-dollar military contracts for mine-resistant
armored vehicles, or MRAPs, with names like Buffalo and Cougar.
Early 2006: Force Protection misses most of its vehicle order deadlines. Other companies had begun to compete for MRAP deals.
2007: Force Protection sells shares to public. A few months later, Force Protection announced its biggest contract, a $490 million
deal with joint venture partner General Dynamics.
2008: Shareholders sue Force Protection, alleging former top executives, who had made tens of millions of dollars in stock trades
before resigning, failed to warn them about delivery delays or a flawed accounting system. (Lawsuit was settled in 2011 for $24 million.) Michael
Moody is brought in as CEO.
2010: Force Protection exceeds $1 billion in sales, headlined by an estimated $280 million contract with the U.K. Minister of
Defence for 200 Ocelot vehicles.
2011: General Dynamics says it will buy Force Protection for $360 million.
Reach John McDermott at 937-5572. Reach Brendan Kearney at 937-5906.