BAE Systems plc (“BAE Systems” or the “Company”) announces that
it has entered into a definitive Stock Purchase Agreement to
acquire the Ball Aerospace business from Ball Corporation for
c.$5.55bn in cash, subject to customary closing adjustments. The
proposed stock transaction will be treated as an asset purchase for
federal tax purposes, with an expected net present value tax
benefit of c.$750m making the underlying economic consideration for
the business c.$4.8bn.
Ball Aerospace is a unique opportunity to strengthen BAE
Systems’ world class multi-domain portfolio
- Leading provider of mission critical space systems and defence
technologies across air, land and sea domains
- Strong growth potential in areas aligned with the US
Intelligence Community and Department of Defense’s highest
priorities
- Attractive positioning and outlook across military and civil
space, C4ISR and missile and munition markets
- Highly complementary fit adding material scale of high calibre
space, optical and antenna solutions
- Excellent cultural fit with a long and distinguished track
record of innovation and product development
- Substantial investment in world class facilities and
capabilities in the last five years to support growth
- Substantial increase to our US classified revenues, offerings
and embedded customer relationships
Value enhancing financial effects
- Expected revenue CAGR of c.10% over the next five years with
scope to expand margins
- Accretive to margins and earnings per share in the first year
post completion including run-rate cost synergies
- Accretive to cash flow per share in the first year
- ROIC expected to exceed WACC within five years post
completion
- Multiple of ~13x 2024E EBITDA net of the tax benefit and
run-rate cost synergies
- Proposed acquisition to be funded by a combination of new
external debt and existing cash resources
BAE Systems structurally compounding investment case
- Attractive and strengthened revenue outlook
- Improved margins and continued expansion potential
- Strong cash conversion
- Consistent with capital allocation policy and allows for
continued share buyback activity as announced with the Half Year
2023 results
Commenting on today’s announcement, Charles Woodburn, Chief
Executive of BAE Systems, 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, strengthening our world class multi-domain
portfolio and enhancing our value compounding model of top line
growth, margin expansion and high cash generation.
“We couldn’t be more pleased to have reached this agreement and
we look forward to welcoming the employees of Ball Aerospace to BAE
Systems as we work together to support our customers and create
value for shareholders.”
Ball Aerospace is a Space and Defence technology
leader
Ball Aerospace is a leading provider of spacecraft, mission
payloads, optical systems, and antenna systems with decades of
proven success underpinned by world class advanced technologies.
They have trusted customer relationships among the Intelligence
Community, US Department of Defense, and civilian space agencies.
The business has been a pioneer in its markets for many decades and
is organised into four main divisions: National Defense, Tactical
Solutions, Civil Space, and Advanced Technology and Information
Solutions.
The business operates across a broad base of customers and
platforms. It is well positioned in highly attractive markets,
military and civil space, C4ISR, and missile and munitions. The
space market exposure extends across positions in defence,
intelligence, and scientific missions. The Tactical Solutions
business is well positioned to capture expected increases in demand
for missiles and munitions.
The business is headquartered in Colorado, with more than 5,200
employees, of whom over 60% hold US security clearances.
Ball Aerospace has high revenue visibility and strong growth
outlook
The business has a long and distinguished track record as a
trusted partner and pioneering innovator. Over the last five years,
Ball Aerospace has demonstrated its ability to convert its highly
differentiated capabilities into a strong order backlog that has
nearly doubled in size. It has invested around $1bn in world class
facilities and capabilities which, combined with its highly skilled
workforce, positions the business to deliver continued growth for
years to come.
The proposed acquisition represents an exceptional opportunity
to strengthen our portfolio with significant scale and high end
technology capabilities. Ball Aerospace will add more than $2bn in
annual revenues in the growing space domain, C4ISR and missile and
munitions markets. The acquisition will provide our US business
with a position in some of the fastest growing segments of the
defence market and further increases our alignment to enduring
customer priorities embodied in the US National Defense
Strategy.
The growth outlook, anticipated at a c.10% CAGR over the next
five years will build on our US business’ existing strong portfolio
by expanding our footprint in space by an order of magnitude,
offering a complementary set of customer relationships in the
national security space community, and providing new access to
civil space markets. In addition, Ball’s expertise in spacecraft,
mission payloads, optical systems, sensors, scientific and tactical
systems, analytical tools, and world class antenna systems support
a broad set of products and differentiated technologies to address
the growing space, C4ISR and missile and munitions markets.
Highly complementary fit with BAE Systems portfolio and
culture
The Ball Aerospace portfolio is highly complementary and offers
a number of adjacencies to our US-based business, with particular
opportunities to advance a number of franchise positions across
multiple Electronic Systems businesses. On completion we expect to
report Ball Aerospace as part of that sector.
We believe this proposed acquisition provides compelling value
and an exciting future, underpinned by our companies’ shared
culture of innovation and strong, mission-driven values. Our
mission of We Protect Those Who Protect Us® resonates with the Ball
Aerospace team, and our adjacent and augmented positions across the
defence, intelligence, and scientific markets will strengthen our
outlook and benefit BAE Systems, the Ball Aerospace business, and
customers alike.
Strong synergy potential
With complementary adjacencies, Ball Aerospace and our US
business will have expanded opportunities to create, develop, and
manufacture solutions to some of our customers’ most challenging
problems. It will position us to capture anticipated future market
growth driven by modernisation and recapitalisation requirements.
The differentiated products and capabilities in Ball Aerospace will
also offer further acceleration of our pursuit of next-generation
solutions across a number of our US businesses like Electronic
Warfare and C4ISR as they address future customer demand.
In addition to these top line opportunities, we expect there to
be cost synergies c.$30m p.a run rate, with savings resulting from
improved competitive positioning, procurement savings, and improved
programme execution and management of bids to delivery, all
contributing to margin expansion.
The synergistic nature of the combined portfolio supports growth
in adjacent areas for both our US business and Ball Aerospace, and
adds further resilience to our existing franchises in the face of
evolving customer needs and emerging technologies.
Value enhancement
The business is expected to achieve revenues of approximately
$2.2bn and adjusted EBITDA of approximately $310m in 2023 and has
strong growth potential with an expected revenue CAGR of c.10% over
the next five years, with continued growth expected thereafter.
EBIT margins are expected to be around 12% post cost synergies over
the medium term. It is an acquisition that aligns with and enhances
our value compounding model of good sustained organic growth,
margin expansion and strong cash generation.
The net acquisition price of c.$4.8bn represents a transaction
multiple of ~ 13x estimated 2024 EBITDA net of the tax benefit and
net of run-rate cost synergies. The proposed acquisition is
expected to be earnings accretive in the first full year including
run-rate cost synergies, cashflow accretive in the first year
excluding synergies and is expected to achieve a return on invested
capital in excess of cost of capital within five years post
completion.
The proposed acquisition will be funded by a combination of new
external debt and existing cash resources.
Our capital allocation policy remains unchanged. We are
committed to a strong investment grade credit rating and will
continue the ongoing share buyback programmes including that
announced with the 2023 H1 results.
Timetable and Regulatory
Completion is subject to customary regulatory approvals and
conditions with a targeted completion date in the first half of
2024. The Agreement includes a termination fee of US$100 million
payable by BAE Systems, Inc. to Ball Aerospace’s parent company in
the event the transaction is terminated because certain required
regulatory conditions are not met within the agreed timeframe.
Listing Rules Disclosures
The proposed acquisition constitutes a Class 2 transaction for
the purposes of the UK Financial Conduct Authority's Listing Rules.
During the full year ended 31 December 2022, the Ball Aerospace
business generated revenue of $1,977m and EBIT of $170m, and the
business had gross assets of $1,152m.
Analyst and investor presentation
A presentation, for analysts and investors, will be available
via WebEx at 9:00 am UK time today (17 August 2023). Details can be
found on investors.baesystems.com, together with presentation
slides and this announcement. A recording of the presentation will
be available for replay later in the day.
The conference call registration link is detailed below:
https://edge.media-server.com/mmc/p/925ertin
Cautionary statement:
All statements other than statements of historical fact included
in this announcement including, without limitation, those regarding
the financial condition, results, operations and businesses of BAE
Systems and its strategy, plans and objectives and the markets and
economies in which it operates, are forward-looking statements.
Such forward-looking statements which reflect management’s
assumptions made on the basis of information available to it at
this time, involve known and unknown risks, uncertainties and other
important factors which could cause the actual results, performance
or achievements of BAE Systems or the markets and economies in
which BAE Systems operates to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. BAE Systems plc and its directors
accept no liability to third parties in respect of any such
forward-looking statements.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF THE MARKET ABUSE REGULATION (EU) NO 596/2014 AS IT
FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION
(WITHDRAWAL) ACT 2018 - FOR IMMEDIATE RELEASE
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version on businesswire.com: https://www.businesswire.com/news/home/20230817941981/en/
Investors Martin Cooper, Investor Relations Director
Telephone: +44 (0)1252 383455 Email: investors@baesystems.com
Media Relations Kristina Anderson, Director, Media
Relations Telephone: +44 (0) 7540 628673 Email:
kristina.anderson@baesystems.com
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