Britain's BAE Systems (BAES.L) on Thursday agreed to buy Ball Corp's (BALL.N) aerospace assets for about $5.55 billion in cash, snapping up a key U.S. contractor in areas such as national security and intelligence.
Reuters had reported in July that private equity firms Blackstone Inc (BX.N) and Veritas Capital Fund Management were competing against defence companies such as BAE, General Dynamics Corp (GD.N) and Textron (TXT.N) to buy the business.
Ball Corp, the world's largest supplier of beer cans, said it would use the proceeds to trim its $9.7 billion debt pile, return money to shareholders and speed up organic growth across its global packaging operations.
BAE, Britain's biggest defence company, plans to raise new debt and use cash to buy Ball's aerospace operations, which build spacecraft, instruments and sensors used among other things to monitor weather and climate change.
Shares in BAE Systems were down 3% by 0730 GMT.
"We see this deal as a good fit, although slightly expensive," Jefferies analysts led by Chloe Lemarie wrote in a note.
The deal, which is expected to close in the first half of 2024, would add to its earnings per share and margins in the first year post completion.
BAE has benefited from increased military spending. This month it upgraded its earnings guidance for 2023, saying increased global uncertainty had driven military equipment orders to a record level.
"It's rare that a business of this quality, scale and complementary capabilities, with strong growth prospects and a close fit to our strategy, becomes available," BAE Chief Executive Charles Woodburn said in a statement.
"The strategic and financial rationale is compelling, as we continue to focus on areas of high priority defence and Intelligence spending."
"Confirming the buyback is thus a key support," the analysts said as BAE on Thursday confirmed the 1.5 billion pound ($1.91 billion) share repurchase announced with its half-year results.
The Colorado-based aerospace business, which provides aerospace and national defence hardware such as sensors and antennas, made $1.98 billion in revenue and accounted for 13% of Ball's consolidated net sales in 2022.
The proposed deal would be treated as an asset purchase for federal tax purposes, BAE said.
Morgan Stanley serves as Ball Corp's financial adviser.
($1 = 0.7856 pounds)
