Industry Week in Review – February 11, 2011
Stocks ended a strong week higher on Friday as the Dow and S&P 500 ended at their highest levels since mid-June 2008. As the U.S. government is more than one-third of the way through its FY11, the Pentagon continues to be restrained by last year’s spending plan. With the new Congress only beginning to address the issue, several solutions are under discussion, including an extension of the continuing resolution throughout the rest of the year, which would leave the Pentagon approximately $25 billion short of its 2011 request. Effects of the lack of a 2011 budget are being felt across the board as billions of dollars too much go to programs intended to be scaled back, such as the buying of Humvees, and billions of dollars too little go to programs intended to ramp up, such as the Air Force’s tanker effort. The Army instituted a hiring freeze for its civilian workforce and is contracting services on a costly and ineffective monthly basis. The Navy has major shortfalls in its shipbuilding accounts and cannot sign yearlong support and maintenance contracts for base operations, and the Air Force is running out of money to pay troops, conduct normal operations, and perform maintenance. A growing fear is that Pentagon efforts may be disrupted beyond FY2011 as planners do not know how much money is required to properly construct the 2012 budget, due to Congress on February 14th. In addition to expressing frustration about the budget, the Pentagon has taken the stance of not supporting mergers of large defense companies. Further consolidation within the industry goes against Secretary Gates’ “Better Buying Power Initiative” and hinders the DoD’s attempts to increase the number of competitive contracts. While Pentagon officials expect market forces to lead to an “uptick” in M&A activity and recognize that adjustments must be made for greater overall efficiency, they will require transparency for all potential transactions.
This week’s big movers:
- Computer Sciences Corporation (Down 14.1)
- Heroux-Devtek Inc. (Up 10.8%)
- Globecomm Systems Inc. (Up 13.3%)
- Herley Industries Inc. (Up 15.3%)
- Jorge Scientific Corporation announced on Tuesday that it has acquired FedConcepts
- Kratos announced on Monday that it has entered into a definitive agreement to acquire Herley Industries, Inc.
- Cobham announced on Monday that it has acquired Corp Ten International Inc.