General Dynamics Corp. has agreed to buy Force Protection Inc., the Lowcountry maker of blast-protected military vehicles, for about $360 million in cash.

The deal, announced Monday, values Force Protection at $5.52 a share. The companies said that is a 31% premium over its recent share price.

Force Protection will become part of General Dynamics Land Systems, the Sterling Heights, Michigan, unit that designs and builds the Abrams main battle tank and the Stryker infantry combat vehicle, according to the companies’ announcement.

“Force Protection complements and strategically expands General Dynamics’ armored vehicle business, adding new products to the expansive portfolio of combat vehicles that we currently manufacture and support,” said Mark C. Roualet, president of General Dynamics Land Systems.

How the deal works

A General Dynamics subsidiary, Falcon Acquisition Corp., will make a tender offer for all of Force Protection’s shares, and Force Protection’s board will recommend that shareholders tender, according to the merger agreement the company filed with the Securities and Exchange Commission. Both boards have approved the deal.

The transaction needs antitrust clearance under the Hart-Scott-Rodino Act, and the companies expect to complete it by the end of 2011. General Dynamics said it expects the purchase to add to its earnings in 2012.

If the deal is terminated in certain circumstances, Force Protection could owe General Dynamics a $10 million fee plus up to $2 million in expenses, the filing said.

Lincoln International and Barclays Capital advised Force Protection and gave fairness opinions. Sullivan & Cromwell LLP and Smith Moore Leatherwood LLP are its legal advisers.

Why sell

Chairman and CEO Michael Moody said on a conference call Monday that General Dynamics’ interest was unsolicited, and he pointed to a tougher outlook for defense spending.

“After careful consideration of the strategic direction of Force Protection, our board decided that a sale to General Dynamics would maximize value for our stockholders,” Moody said in the announcement.

On the call, he said defense budgets worldwide will be closely scrutinized and that significant cuts are likely, which he said makes for a challenging environment for smaller companies focused on defense budgets and the wars in Iraq and Afghanistan.

Moody also addressed what the sale would mean for the company.

“It’s clear to me that General Dynamics is buying Force Protection to help grow and develop our business and not to dismantle or shut it down,” Moody said. He added that some overlapping functions could lead to targeted cost reductions, but said the bigger opportunity lies in growing sales.

What General Dynamics gets

Force Protection has about 1,100 employees, according to the announcement. Its vehicles include the Buffalo mine-clearance vehicle, the Cougar and the newer Ocelot. The company has delivered more than 3,000 vehicles under the military’s Mine Resistant Ambush Protected program, known as MRAP, and also sells Cougar and Buffalo vehicles to foreign customers including Britain’s Ministry of Defence, the companies said.

Support work is a big part of the business. Roualet said Force Protection’s workforce supports an installed fleet of about 3,000 vehicles. Moody said on the call that the company has more than 400 field service representatives at bases in Kuwait, forward locations in Afghanistan and elsewhere.

The Ocelot, sold in Britain as the Foxhound, went through design, development and testing in 20 months and led to a $280 million British contract for 200 vehicles that is now in production, Moody said.

The company’s Ladson plant has new work, too. Last Tuesday, Force Protection said the Army ordered 167 more Buffalo A2 vehicles and 102 bar armor kits under a modification worth about $185.9 million, with the work to be done in Ladson and deliveries running to April 2014. The Buffalo also received authorization to proceed to full-rate production, the company said.

Force Protection also reported third-quarter results Monday. Moody said gross margin was 22%, up from 19% a year earlier, after a challenging first half of the year.

Old partners

The two companies know each other. In December 2006, Force Protection and General Dynamics Land Systems formed Force Dynamics LLC, a joint venture to win and carry out MRAP contracts with the Cougar, according to Force Protection’s filings at the time.

General Dynamics Land Systems has about 8,400 workers, according to the announcement. Force Protection’s headquarters is on Old Trolley Road in Summerville, and it builds vehicles in Ladson.

Until the deal closes, Moody said, Force Protection will keep operating as a separate company.