At first glance, I suppose I see TheStreet.com's point. In a column yesterday, Jim Cramer's mouthpiece argued that a $1.2 billion Pentagon award to produce additional mine-resistant, ambush-protected armored vehicles (MRAPs) was a bad thing for Force Protection
After all, it's not as if Force got the whole award to itself -- or even the lion's share. Fact is, the greatest number of MRAPs was awarded to perhaps the least likely of the candidates -- NYSE-delisted truck maker Navistar, which was asked to produce 1,000 of the beasts for a cool $509.2 million. Force came in second in the MRAP lottery, with a contract to build 800 Cougars for $376.6 million. Third place went to Britain's BAE Systems, which will build 600 Chargers and similar MRAPS for $322.8 million. (Average per-vehicle cost, for those who are counting: $538,000 for BAE's various flavors of MRAP; $509,200 for Navistar's MaxxPro offering; and a mere $470,750 for Force's vehicles -- presumably Cougars.)
Actually, though, we can't expect Force to get even the full $376.6 million. Production constraints that forced it into bed with General Dynamics
Sorry, dance card full
Left out in the cold in this deal are still-NYSE-listed truck maker Oshkosh
If war is good for profits, then xenophobia may be even better. In the past, the Pentagon had assured that it would do its utmost to get as many IED-proof vehicles as possible in the theater, as soon as possible -- regardless of who built them. But yesterday, it announced that in the future it would not be entertaining bids from two (sort of) foreign builders: General Dynamics subsidiary "Land Systems-Canada" and the now-foreign-owned Armor Holdings, which BAE bought earlier this year. Past MRAP contracts, you may recall, have been repeatedly given to General D's Land Systems-Canada unit, only to have the bulk of the work performed by various BAE subsidiaries. The Pentagon seems willing to allow BAE's U.S. subsidiary, BAE North America, to keep building MRAPs, however. And of course, the General's still free to keep building here in the States.
So perhaps "xenophobia" is too strong a word. After all, the Pentagon did provide a logical reason for its decision. Namely, it said it wants to keep down the maintenance costs by moving toward a more standardized fleet of MRAPs in the theater. It's a logical argument, reminiscent of JetBlue's decision to fly only one type of airplane initially (and just look what's happened to JetBlue since it changed its mind about that).
Still, the fact remains that the Pentagon seems to have chosen its preferred MRAP providers. General D, BAE North America, Navistar, and Force Protection are in. BAE/Armor Holdings and General D-North-of-the-Border are out. Also out, and perhaps this time for good, is Oshkosh. With it, I suspect, may go Ceradyne and its mysterious BULL armor/vehicle.
And now we come to the jump-to-conclusions portion of today's column (obscure Office Space reference for you cubicle dwellers out there). If the military has indeed decided upon its favored builders of MRAPs, firms that lost out in the initial round may feel more inclined to buy back into this contest with an acquisition. General Dynamics and BAE are both too large for their rivals to comfortably swallow. But I wouldn't be entirely shocked if an early-round loser like Textron
The price would have to be right, of course. And it seems to me that Force would fit more logically into Textron's portfolio, Navistar into Oshkosh's. Either way, though, if the also-rans are to get back into the running for MRAP contracts, this would now appear to be their only option. Call me a Fool, but I think even the possibility of a buyout makes Force Protection more valuable today than it was before it "lost" first place to Navistar yesterday.
For more on the MRAP race, read: