BAE Systems to acquire Ball Aersopace business for $5.55B in cash

BAE Systems (BAESY) announced that it has entered into a definitive stock purchase agreement to acquire the Ball Aerospace business from Ball Corp. (BALL) for $5.55B in cash, subject to customary closing adjustments. The proposed stock transaction will be treated as an asset purchase for federal tax purposes, with an expected net present value tax benefit of $750M making the underlying economic consideration for the business $4.8B. Ball Aerospace is headquartered in Colorado, with more than 5,200 employees, of whom over 60% hold U.S. security clearances. In addition to opportunities, the company expects there to be cost synergies $30M p.a run rate, with savings resulting from improved competitive positioning, procurement savings, and improved program execution and management of bids to delivery, all contributing to margin expansion. The business is expected to achieve revenues of approximately $2.2B and adjusted EBITDA of approximately $310M in 2023 and has strong growth potential with an expected revenue CAGR of 10% over the next five years, with continued growth expected thereafter. EBIT margins are expected to be around 12% post cost synergies over the medium term. It is an acquisition that aligns with and enhances our value compounding model of good sustained organic growth, margin expansion and strong cash generation. The net acquisition price of $4.8B represents a transaction multiple of 13x estimated 2024 EBITDA net of the tax benefit and net of run-rate cost synergies. The proposed acquisition is expected to be earnings accretive in the first full year including run-rate cost synergies, cashflow accretive in the first year excluding synergies and is expected to achieve a return on invested capital in excess of cost of capital within five years post completion. The proposed acquisition will be funded by a combination of new external debt and existing cash resources. Our capital allocation policy remains unchanged. We are committed to a strong investment grade credit rating and will continue the ongoing share buyback programs including that announced with the 2023 H1 results. Completion is subject to customary regulatory approvals and conditions with a targeted completion date in the first half of 2024. The Agreement includes a termination fee of $100M payable by BAE Systems, Inc. to Ball Aerospace’s parent company in the event the transaction is terminated because certain required regulatory conditions are not met within the agreed timeframe.