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Ball Corporation’s (BALL) shares surged 3% in early trading on Thursday after the aluminum packaging company agreed to sell its aerospace business for $5.6 billion to BAE Systems, Britain’s largest defense company.
KEY TAKEAWAYS
- BAE Systems plans to acquire Ball Corporation’s aerospace division for $5.6 billion.
- Roughly half of the proceeds of the deal will be spent to reduce Ball’s $9.7 billion debt.
- The company also plans to use the funds to grow faster and give money back to stockholders through buybacks and dividends.
The price is nearly 20 times the aerospace division’s earnings before interest, taxes, depreciation, and amortization (EBITDA) for the last year. Ball said it plans to use about half of the after-tax amount of $4.5 billion to reduce its $9.7 billion debt, as part of the company’s strategy to maintain a conservative level of debt.
The sale proceeds will also be used to give money back to shareholders through share buybacks and dividends, as well as contribute to faster organic growth, Ball said.
Ball Aerospace’s space-related programs were expected to account for about 70% of its estimated 2023 revenue of $2.2 billion, and a number of defense companies and private equity firms competed to purchase it.
The acquisition could allow BAE Systems to advance in some of the fastest-growing segments of the defense market, and address rising demand for space systems in the U.S.
Subject to the usual regulatory approvals and closing conditions, the deal is expected to be finalized in the first half of 2024.
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