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BAE Systems To Buy Ball Aerospace For $5.6 Billion

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One of the largest UK mergers of the year was announced today when BAE Systems, the country’s main defense contractor, announced that it had agreed to pay $5.6 billion (£4.4 billion) to acquire US company Ball Aerospace.

In an era of increased national government spending on defense, BAE announced that it had signed an agreement to acquire the Colorado-based company as part of an effort to increase its capabilities in spacecraft and missile development.

The company said that a mix of fresh external financing and already available financial resources would finance the transaction. The transaction is anticipated to be completed within the first half of 2019.

CEO Charles Woodburn said: “The strategic and financial rationale is compelling, as we continue to focus on areas of high priority defence and Intelligence spending, strengthening our world class multi-domain portfolio and enhancing our value compounding model of top line growth, margin expansion and high cash generation.”

Ball Aerospace, a division of the Ball Corporation, develops space and defense technologies for national governments, contributing to the Hubble and James Webb satellite observatories as well as producing parts for the F-35 fighter plane. More than 5,200 people work for the company, and more than 60% of them have US security clearances.

Ball Aerospace, according to BAE, will boost its space, missile, and munitions sectors’ annual revenues by more than $2 billion.

The Ball Corporation, which employs 21,000 people globally and designs and manufactures packaging as well, stated that it will use the money from the sale to reduce its debt and “accelerate” the capital return to shareholders through share repurchases and dividends.

“BAE Systems is well-positioned to invest in Ball Aerospace to elevate the combined business to new heights, generate significant value to critical mission partners, offer customers more affordable solutions and enable a safer world for all stakeholders benefitting from today’s agreement,” said Daniel W. Fisher, Ball Corporation CEO.

The transaction ranks as the second-largest British merger deal of the year, behind Dechra’s announcement in June that it will be acquired by Swedish company EQT for £4.5 billion.

Some BAE shareholders expressed doubts about the purchase, questioning the wisdom of a debt-fueled acquisition in an environment of rising interest rates. They also questioned if the transaction would be prohibited by regulators on the basis of competition due to Ball’s anticipated profit margins, which were lower than those of some of BAE’s other business units.

Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said: “Given the similarities between the two businesses, there’s clear scope to streamline operations, cut costs and boost profit margins. An acquisition of this size has only been made possible by BAE’s improved performance in recent years.”

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