Rivals Burst Force Protection's Bubble

Official Script

On the surface, at least, nearby Force Protection still displays plenty of confidence itself.

Force Protection's joint venture with General Dynamics has by now scored two large MRAP contracts that, together, are worth more than Navistar's big prize. Under the terms of that partnership, however, Force Protection is entitled to just half the proceeds. Bullish investors had assumed that there would be more to share.

Moreover, critics doubt that Force Protection will land another big order right now and question whether the company could fill it even if it did. They view shares of Force Protection, reflecting orders yet to come, as grossly overvalued, as a result.

Force Protection's outgoing chairman, Frank Kavanaugh, sure has been cashing in. Last month alone, Kavanaugh -- a frequent seller of Force Protection shares -- pocketed $10 million from company stock sales. He executed his last transaction on May 31, when Force Protection peaked just before news of Navistar's surprise award.

Then, with little warning, Kavanaugh suddenly resigned from Force Protection's board at the company's annual shareholder meeting last week. In response, Force Protection celebrated its swelling market value -- which soared from $1 million to more than $1.5 billion during Kavanaugh's reign -- as a "remarkable" achievement on his way out the door.

Going forward, other big investors could start dumping stock as well. Notably, by the end of this month, Force Protection expects to file an overdue registration statement for 13 million shares of stock that it issued in a private placement late last year. Owners of that stock -- including value investors who have seen their shares double already -- should be free to cash out after that happens.

Still, despite his own stock sales, Kavanaugh has promised even better days ahead.

"I look forward to continuing my support of Force Protection as an involved investor," he recently stated. "The organization's leaders are capable of taking Force Protection to new heights."