BAE Systems puts windfall profits to work with $5.6 billion acquisition
- The proposed acquisition would be the largest by a British company this year.
- Ball Aerospace designs spacecraft, mission payloads and antenna systems
- Defense spending has skyrocketed following Russia’s full-scale invasion of Ukraine
BAE Systems is set to take another significant step into the US market after agreeing to acquire Ball Corporation’s aerospace division for around $5.6bn (£4.4bn).
Europe’s largest defense contractor said the proposed acquisition of Bell Aerospace, which would be the largest by a British company this year, would help expand its presence in sectors including civil space, missiles and munitions.
It added that the deal would help speed up the development of technologies across its US businesses and provide around £30m per year in cost savings.
Acquisition: BAE Systems said the proposed acquisition of Ball Aerospace would help expand its presence in sectors such as civil space, missiles and munitions.
Based in Colorado, Ball Aerospace manufactures equipment such as spacecraft, mission payloads and antenna systems, as well as weather monitoring systems and parts for the Hubble Space Telescope.
It has 5,200 employees, most of whom have US security clearance, which means they are cleared to work on sensitive technologies.
Ball Corporation, its parent company, told investors that proceeds from the sale would go toward reducing debt and returning capital to shareholders through share buybacks and dividends.
The maker of home canning products acknowledged in June that it was “considering all options” for the aerospace arm.
BAE said the company expects to report annual revenue of around $2 billion and adjusted underlying earnings of about $310 million this year, and plans to increase sales by an estimated 10 percent a year for the next five.
Charles Woodburn, Chief Executive Officer of BAE Systems, said: “The proposed acquisition of Ball Aerospace is a unique opportunity to add a fast-growing, high-quality technology-focused business with significant capabilities to our core business that is running strong and well positioned for sustained growth.
“It is rare that a business of this quality, scale and complementary capabilities, with strong growth prospects and a close fit to our strategy, is available.”
Global defense spending soared in the aftermath of Russia’s invasion of Ukraine last year, as Western countries have tried to provide vital weapons to the Ukrainian military, while also developing their own armed forces.
Demand for nuclear-powered fighter planes and submarines saw BAE Systems receive a record £21.1bn of new orders in the first six months of 2023.
The FTSE 100 firm recently updated its annual guidance after reporting half-year sales rose to £12bn and profit rose 10 per cent to £1.3bn.
Based in Farnborough, Hampshire, BAE is building equipment for the RAF’s Eurofighter Typhoon jet programme, Queen Elizabeth-class aircraft carriers and Astute-class submarines.
BAE Systems shares they have expanded by around 60 percent in the past 18 months, though they were down 4.3 percent at 972.6 pence on Thursday morning.
Russ Mould, AJ Bell’s chief investment officer, said the acquisition “seems a bit expensive and possibly explains the tepid initial shareholder reaction to the deal.”
He added: ‘The cost will increase the pressure on the company to execute the integration process intelligently.
“The fact that BAE has been able to carry out a transaction like this with a minimum of fuss is in itself a testament to their better luck.”