Industry Week in Review – May 04, 2012

As the Army continues to bring its tactical wheeled vehicles home from Afghanistan, it is now faced with the decision of what vehicles to keep, what vehicles to reset, and what vehicles to buy. With an inventory of 270,000 vehicles across the range of vehicle platforms, including tens of thousands of new MRAPs, M-ATVS, Strykers, and up armored Humvees, the Army needs to either position vehicles into its revamped force structure or divest them. Army leadership is conducting a “fleet mix analysis” to determine just which vehicles to support, however there is one vehicle where plans appear to be set.

“For combat, we know the Humvee is no longer feasible,” Maj. Gen. Tony Cucolo, director of force development for the deputy chief of staff, G-8 said. Army officials have stressed that the Humvee still has a future within homeland security and logistics operations, however, once the vehicle leaves Afghanistan it will not see the battlefield again.

After years of debate over finding a replacement for the Humvee, it now appears that the Joint Light Tactical Vehicle (“JLTV”) will fill this role. A joint venture between the Army and the Marine Corps, the JLTV is currently moving towards a prototype and testing phase that could result in production orders for more than 55,000 vehicles. The JLTV program is expected to cost well over $10 billion, though some estimates have put this figure as high as $70 billion, depending on the final per-vehicle cost and total quantity ordered.

Big Movers

DigitalGlobe, Inc. (Up 35.5%) – Shares are up this week after the satellite imagery company GeoEye, Inc. offered to purchase DigitalGlobe for $792 million in a cash-and-stock deal. A deal between the two companies would create the world’s largest fleet of commercial imagery satellites. (note: DigitalGlobe has since rejected GeoEye’s unsolicited offer)

Chemring Group plc (Up 4.6%) – Shares rose this week after Non-Intrusive Inspection Technology, Inc. (“NIITEK”), a U.S. subsidiary of Chemring, was awarded an Army sole source contract for the Ground Penetrating Radar Husky Mounted Detection System worth up to $579 million. The Company has already been awarded an initial order of $161 million.

ManTech International Corporation (Down 21.8%) Shares fell this week after ManTech missed analysts expectations for the second quarter in a row and cut its 2012 outlook sighting slowing revenue from overseas contingency operations. The Company now expects FY2012 revenue of $3 billion and net income of $113 million.

CACI International, Inc.(Down 20.3%) CACI’s shares saw their steepest decline since April 2011 this week after the Company cut its sales forecast from $4.05 billion down to a range of $3.73 billion to $3.83 billion. Analysts had estimated $3.95 billion. CACI blamed the shortfall in part on slower-than-anticipated procurement by customers, uncertainty in government budgeting, and the drawdown in Southwest Asia.

Relevant Transactions

Kanders & Company, Inc. to acquire BAE Systems’ Safariland, LLC, a manufacturer of protective equipment for law enforcement agencies, including gloves, holsters, and riot gear, as well as armored combat vehicles, ships, and satellite systems for the military. The proposed $114 million sale is another step in BAE’s ongoing plan to streamline its organization and further align its business portfolio and strategy. The sale is expected to close in the second or third quarter.

GeoEye, Inc. to acquire DigitalGlobe, Inc., a provider of commercial earth imagery products and information services worldwide, for $792 million in cash and stock. In the face of increased defense budgetary pressures and internal competition, a combined company will be better able to provide the U.S. government with geospatial intelligence. GeoEye has offered to pay $17.00 per share for DigitalGlobe, a 26 percent premium to Thursday’s close. (note: DigitalGlobe has since rejected GeoEye’s unsolicited offer)

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