BAE Systems lands $5.55 billion deal to buy Ball Aerospace

Analysts say it is a good buy despite being 'slightly expensive'

BAE Systems is one of the partners in the Europfighter Typhoon jet programme. Antonie Robertson / The National

UK defence company BAE Systems has bought the aerospace business of global packaging business Ball for $5.55 billion, in what is the largest acquisition by a UK company this year.

Ball Aerospace makes defence technology and spacecraft, as well as optical, sensor and antenna systems.

The parent company announced in June it was looking for a buyer for its aerospace assets.

It was reported in July that defence companies General Dynamics and Textron were interested, as well as private equity firms.

Last year, Ball Aerospace generated $1.98 billion in revenue and accounted for 13 per cent of the parent company's consolidated net sales.

BAE Systems employs 93,000 people in 40 countries, with products ranging from tank, artillery and missile systems to Eurofighter Typhoon jets.

BAE chief executive Charles Woodburn described the deal as “a unique opportunity to add a high quality, fast-growing technology-focused business with significant capabilities to our core business that is performing strongly and well positioned for sustained growth”.

Given that Ball Aerospace has long established customer relationships among the intelligence community, the US Department of Defence and civilian space agencies, the deal is being expected to enhance BAE's moves into the American market.

Analysts generally thought the synergies between BAE and Ball Aerospace made it a good deal, but those at Jefferies noted that the $5.55 billion price tag might have been “slightly expensive”.

The Ball Aerospace business is expected to add about $2.2 billion in revenue and make about $310 million in profit this year, BAE said.

Profit boost

BAE raised its profit forecast last month as increased military spending following the Ukraine war has boosted its order book to record levels.

“An acquisition of this size has only been made possible by BAE’s improved performance in recent years,” said Aarin Chiekrie, an equity analyst at Hargreaves Lansdown.

“Revenues and operating profits grew at double-digit rates in the first half and cash flows are much healthier now too, which has opened the door to deals like this as well as funding, increased shareholder returns via dividends and new buyback programmes.”

In London, shares in BAE Systems fell by about 4 per cent on news of the acquisition, as eyebrows were raised in the market over the price tag.

“The only downside is the $5.6 billion price tag which looks a touch on the expensive side and potentially explains the initial lukewarm reaction from shareholders to the deal,” said Russ Mould, investment director at AJ Bell.

“The cost will raise the pressure on the company to execute smartly on the integration process. Assuming it hits the targets it has outlined, then it should be earnings accretive in the short term.”

BAE shares have been the second-best performer in London's FTSE 100 Index so far this year, gaining 80 per cent in value.

The deal is expected to be completed in the first half of next year.