BAE Systems Shares Fell 4.3% on the Ball Aerospace Acquisition

The BAE Systems plc (LON: BA) share price fell 4.28% after unveiling plans to acquire the Ball Aerospace business from Ball Corporation for a whopping $5.55 billion in cash. Investors were concerned whether the acquisition would pay off over the long term as envisioned by BAE Systems.

The British multinational arms, security, and aerospace company noted that the transaction would be treated as an asset purchase for federal tax purposes, with an anticipated net present value tax benefit of about $750 million. Hence, the underlying economic consideration for the business is $4.8 billion.

BAE noted that the Ball Aerospace acquisition would strengthen its multi-domain portfolio because Ball is a leading provider of mission-critical space systems and defence technologies across air, land and sea domains. 

The company has robust growth potential in areas aligned with the Department of Defense's highest priorities and the US Intelligence Community. Ball also has a highly complementary fit since it adds material scale in the high calibre space, optical and antenna solutions. 

BAE also noted that Ball Aerospace is an excellent cultural fit with a long, distinguished innovation and product development track record. The company has substantially invested in world-class facilities and capabilities in the last five years to support its growth. 

The British multinational company expects to record a 10% CAGR of its revenues over the next five years with the possibility of expanding its margins. The company expects the acquisition to be accretive to margins and earnings per share in the first year after completion, including run-rate cost synergies. 

Investors' caution about the acquisition led to a slight decline in the BAE share price. 

Charles Woodburn, BAE Systems’ CEO, said: “The proposed acquisition of Ball Aerospace is a unique opportunity to add a high quality, fast-growing technology-focused business with significant capabilities to our core business that is performing strongly and well positioned for sustained growth. 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. The strategic and financial rationale is compelling as we continue to focus on areas of high-priority defence and Intelligence spending…”

BAE share price. 

The BAE Systems share price fell 4.28% to trade at 956.60p, from Wednesday’s closing price of 999.40p.