BAE Systems to Acquire Ball Corp Aerospace Business

BAE Systems announced today its acquisition of the aerospace business of Ball Corp for $5.55 billion. This strategic move will enhance BAE Systems' capabilities in space systems and other defense technologies.

Ball Aerospace, based in Westminster, Colo., is a well-established company with a workforce of over 5,200 employees, with more than 60% holding U.S. security clearances. The company specializes in manufacturing spacecraft, mission payloads, optical systems, and antenna systems.

For the current year, BAE Systems expects Ball Aerospace to generate earnings of $310 million before interest, tax, depreciation, and amortization, with a revenue of $2.2 billion.

The purchase price represents 13 times the estimated EBITDA, net a tax benefit of $750 million, and projected cost synergies amounting to $30 million annually.

In response to the announcement, BAE shares fell by 3% during early trading.

According to analyst Jamie Murray from Shore Capital, this acquisition aligns with BAE Systems' strategic focus on capital allocation and growth through acquisitions. Murray emphasized that such moves are expected across the defense industry as companies aim to expand their operations and take advantage of the long-term growth in defense products.

This acquisition is set to be one of the largest in the United Kingdom this year. Murray believes it is a strong indicator of confidence in the defense industry despite the current economic climate.

Ball Corp stated that the purchase price represents a valuation of 19.6 times comparable EBITDA for the last 12 months. The company intends to use the proceeds to reduce debt, targeting a comparable EBITDA leverage ratio of 3, which falls within its long-term leverage range.

"As a result, the company will be well-positioned to accelerate capital return to shareholders through share repurchases and dividends over a reduced average invested capital base," mentioned the company, without providing specific details on these plans.

The deal is expected to close in the first half of 2024, according to Ball Corp. The acquisition will enable Ball Corp to focus on being a global leader in high-margin aluminum packaging.

While Ball stock has gained 7% this year, it has underperformed compared to the 15% increase in the S&P 500.