Why BAE bought Ball Aerospace and why it matters
For some time now there has been a growing air of confidence around BAE Systems.
That was underlined when, earlier this year, the UK’s biggest defence contractor reported a record order book.
And it was further emphasised when, today, BAE announced it is spending $5.55bn (£4.35bn) on the aerospace division of the US packaging giant Ball Corporation.
The deal, described by BAE as a “unique opportunity to strengthen BAE Systems’ world class multi-domain portfolio”, is the biggest acquisition this year by a British company.
The Ball Corporation is a specialist supplier of satellite systems, geospatial intelligence, tactical solutions and antenna arrays.
The acquisition of its aerospace arm takes BAE more deeply into both the space sector and into what, in defence industry jargon, is described as ‘C4ISR’ – command, control, communications, computers, intelligence, surveillance and reconnaissance.
Ball, the world’s biggest maker of aluminium drink cans, put the business up for sale earlier this year as it seeks to focus on packaging and to reduce its $9.7bn debt pile – which is partly a legacy of its £4.5bn takeover of Rexam, the former FTSE-100 packaging group, in June 2016.
Please use Chrome browser for a more accessible video player
In November Sir Simon Lister discussed BAE’s Royal Navy contract to build five ships in Govan, Glasgow
Rivals beaten by BAE
BAE faced stiff competition to buy the business.
Private equity companies Blackstone and Veritas Capital were both in the running, as were other defence contractors, including the $61bn US giant General Dynamics and Textron, whose products include Cessna aircraft.
Charles Woodburn, the BAE chief executive, said the business – which BAE had not expected to become available – would be an “excellent addition” to BAE’s portfolio and an “excellent strategic fit”.
He added: “This is a significant and exciting day for BAE Systems.”
Mr Woodburn said Ball Aerospace was expected to grow its sales by 10% a year during the next five years and that it was also expected to add to BAE’s profits during the first year following the deal.
Ball Aerospace has already doubled its sales during the last five years and BAE expects those sales – which were $1.98bn in 2022 – to hit some $4bn by the end of the decade.
Mr Woodburn added: “We are making this acquisition from a position of strength. Ball Aerospace hits the mark in terms of a number of our strategic priorities… [including] defence, intelligence and scientific missions.”
Why BAE bought Ball Aerospace
Mr Woodburn outlined several reasons for buying Colorado-based Ball Aerospace.
The first is that the space sector is a market of growing importance to BAE’s customers. It will also deepen BAE’s relationship with the likes of NASA – one of Ball Aerospace’s key customers.
The second is the growing importance to BAE’s customers of environmental monitoring and surveillance as they seek to respond to climate change.
Ball Aerospace, which employs more than 5,200 people, is a key supplier of advanced remote sensing and other scientific systems and analytic tools and expertise.
It also enjoys a strong relationship with the National Oceanic and Atmospheric Administration, the US government body that provides daily weather forecasts, storm warnings and climate monitoring.
Read more:
UK’s ability to arm itself ‘is broken’, MPs warn
Failures hindered UK’s ability to secure tanks, review finds
The third reason is the war in Ukraine.
Tom Arseneault, who heads BAE’s US arm BAE Systems Inc, said the war had led to a surprisingly rapid drawdown of munitions that was forcing governments to spend more in areas such as that serviced by Ball’s tactical solutions business, which supplies stealth cameras and antennas used on land and sea, and in air and space.
He said the company was optimistic about the regulatory process – a key point given that the US government, under first Barack Obama and then Donald Trump, has become increasingly sensitive in recent years about allowing the acquisition of strategic businesses by overseas buyers.
The deal means the US will now account for just under half of BAE’s global sales.
The Prince of Wales talks to BAE Systems apprentice Charlotte and Typhoon delivery director Martin Topping during a visit to RAF Coningsby, Lincolnshire
Debt fears cause shares to fall
Shares of BAE fell by just over 5% on the news amid concerns that BAE’s debt will increase following the takeover.
Some analysts also expressed concerns that Ball Aerospace’s profit margins are slightly below those enjoyed by BAE’s electronic systems arm.
BAE’s margin is between 15-17% while Ball’s margins are between 10-12%.
But Mr Arseneault dismissed that, arguing that synergies between the two businesses would in time bring Ball Aerospace’s margins higher.
He added: “As part of a company with like supply chains, similar customers and… the ability of the teams to leverage each other’s connections and buying power will… underpin margin improvement.”
That pledge probably stacks up given BAE’s recent history.
As Mr Woodburn noted, BAE has a track record during the last few years of improving margins in its electronic systems business, while more broadly it also has a solid track record in integrating acquisitions in this field.
Following the blockbuster merger between US defence giants United Technologies and Raytheon in 2019, US regulators forced the enlarged company to offload a number of businesses, two of which were subsequently snapped up by BAE.
These were successfully integrated into BAE’s electronic systems business despite the disruption posed when the pandemic erupted shortly afterwards.
The bigger picture is that, while many people associate BAE with military hardware such as jet fighters, tanks, submarines and torpedoes – all of which remain important parts of what it does – the company has been evolving over recent years.
Products and services in electronic systems, cyber security and intelligence are an increasingly crucial part of what it offers customers.
The war in Ukraine has highlighted, in particular, the importance of satellite technology.
The way warfare is conducted is changing – and this deal underlines how this important British business is responding.
Britain’s trade deal with India has created a pocket of controversy on taxation.
Under the agreement, Indian workers who have been seconded to Britain temporarily will not have to pay National Insurance (NI) contributions in the UK. Instead, they will continue to pay the Indian exchequer.
The same applies to British workers in India. It avoids workers from being taxed twice for a full suite of benefits they will not receive, such as the state pension.
Money latest: How dynamic pricing is coming to UK restaurants
Politicians of all stripes have leapt to judgement.
Nigel Farage has described it as a “big tax exemption” for Indian workers. He said it was “impossible to say how many will come,” with the Reform Party warning of “more mass immigration, more pressure on the NHS, more pressure on housing.”
But, is this deal really undercutting British workers or is it simply creating a level playing field?
Be wary of any hasty conclusions. In the absence of an impact assessment from the government, it is difficult to be precise about any of this. However, at first glance, it is unlikely that some of Reform’s worst fears will play out.
Please use Chrome browser for a more accessible video player
Whisky boss toasts India trade deal
Firstly, avoiding double taxation is not the same thing as a “tax break.’ This type of agreement, known as a double contribution convention, is not new.
Britain has similar arrangements with other countries and blocs, including the US, EU, Canada and Japan.
It’s based on the principle that workers shouldn’t be paying twice for social security taxes that they will not benefit from.
Please use Chrome browser for a more accessible video player
UK-India trade deal explained
Indian workers and businesses will still have to pay the equivalent tax in India, as well as sponsorship fees and the NHS surcharge.
Crucially, the deal only applies to workers being sent over by Indian companies on a temporary basis.
Those workers are on Indian payroll. It does not apply to Indian workers more generally. That means businesses in the UK can’t (and won’t) suddenly be replacing all their workers with Indians.
Read more:
What’s in the UK-India trade deal?
India trade deal: The devil is in the detail
The conditions for a company to send over a secondee on a work visa are restrictive. It means it’s unlikely that these workers will be replacing British workers.
However, It does mean that the exchequer will not capture the extra national insurance tax from those who come over on this route.
The government has not shared its impact assessment for how many extra Indians they expect to come over on this route, how much NI they will escape, or how much this will be offset by extra income tax from those Indians. The net financial position is therefore murky.
China has revealed a series of measures designed to help its economy navigate the effects of the escalating trade war with the United States, hours after exploratory peace talks were announced.
Senior officials from both sides are to meet in Switzerland this weekend for what are understood to be the first face-to-face meeting between the world’s two largest economies in months.
The Trump administration has raised tariffs on Chinese goods to 145% while Beijing has responded with levies of 125% in recent weeks.
The effects are starting to be felt in both countries in respect of price, supply and business sentiment.
China’s export-dominated economy is showing strain in terms of factory order books while official figures recently revealed that the US economy contracted between January and March.
US Treasury secretary Scott Bessent and Chinese vice premier He Lifeng will lead their respective delegations.
President Trump had previously suggested that any talks would look to lower tariffs but China has demanded the US moves first.
Please use Chrome browser for a more accessible video player
Trump: Chinese factories are closing
A Commerce Ministry spokesperson said: “The Chinese side carefully evaluated the information from the US side and decided to agree to have contact with the US side after fully considering global expectations, Chinese interests and calls from US businesses and consumers.”
Commentators said it was impossible to know what could be achieved at the talks in Geneva but cautioned that any meaningful truce would take months to fully iron out.
Official Chinese economic data is yet to show the extent of the harm the trade war is causing but a coordinated stimulus effort was revealed by the authorities on Wednesday.
Read more from Sky News:
Should some women offenders be spared jail?
UK and India strike trade deal
Officials from the country’s central bank outlined plans to cut interest rates and reduce bank reserve requirements to help free up more funding for lending.
It will be hoped that bolstering activity in the economy will help lift prices generally as the country battles deflation.
Other help included government funding for factory upgrades.
-
Sports3 years ago‘Storybook stuff’: Inside the night Bryce Harper sent the Phillies to the World Series
-
Sports1 year agoStory injured on diving stop, exits Red Sox game
-
Sports2 years agoGame 1 of WS least-watched in recorded history
-
Sports2 years agoMLB Rank 2023: Ranking baseball’s top 100 players
-
Sports4 years ago
Team Europe easily wins 4th straight Laver Cup
-
Environment2 years agoJapan and South Korea have a lot at stake in a free and open South China Sea
-
Environment2 years agoGame-changing Lectric XPedition launched as affordable electric cargo bike
-
Business3 years agoBank of England’s extraordinary response to government policy is almost unthinkable | Ed Conway