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.
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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.
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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.
The first-ever Capture case has been delayed at the Court of Appeal as the Post Office asks for an extension to respond, Sky News has learned.
Pat Owen, a former sub postmistress who has since passed away, was convicted of stealing in 1998 based on evidence from computer software.
The system, known as Capture, was used in up to 2,500 branches in the 1990s, before the infamous Horizon system was introduced.
Hundreds of sub-postmasters were wrongfully convicted between 1999 and 2015 as part of the Horizon scandal.
Earlier this year, Sky News unearthed a 1998 report showing the Capture software was also faulty.
That report, commissioned by the solicitors acting for Mrs Owen in 1998, was served on the Post Office and may never have been seen by the jury in her case.
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‘All we want is her name cleared’
Ms Owen was given a suspended prison sentence and fought to clear her name subsequently – but died in 2003.
Her case was referred by the Criminal Cases Review Commission (CCRC) to the Court of Appeal in October.
The Post Office had until 5 December to respond to papers put forward by Mrs Owen’s defence team but they have now asked for an extension until 30 January.
Ms Owen’s daughter, Juliet Shardlow, described the family’s suffering at the lengthening wait.
“I need to emphasise the profound impact the ongoing delay is having on our family,” she said.
“The continuous uncertainty only compounds our heartache, stress, and anxiety.
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Alan Bates: New redress scheme ‘half-baked’
“It has become the last thing I think about before I go to sleep and the first thing when I wake up.
“We have waited 27 years for justice, and this additional wait feels never-ending.”
Ms Owen’s case is the first time a conviction based on Capture has reached the Court of Appeal since the scandal was exposed.
Read more from Sky News:
Corporate manslaughter charges considered in Post Office scandal
21 ‘Capture’ cases investigated for miscarriages of justice
Lawyers have said that if Ms Owen is exonerated posthumously, it may “speed up” the handling of others.
CCRC chair Dame Vera Baird also told Sky News in the summer it could be a “touchstone case” for other victims.
The CCRC is also continuing to investigate around 30 other “pre-Horizon” convictions.
A Post Office spokesperson said: “We have sought an extension of time to fully consider and respond to the CCRC’s Statement of Reasons in Ms Owen’s case.
“We deeply regret the impact our request for further time will have on Ms Owen’s family.
“We have a duty to carefully consider the evidence presented in the Statement of Reasons submitted by the CCRC and do everything we can to fully assist the Court when it considers this conviction.”
Meanwhile, the first-ever redress scheme for victims of the Post Office Capture IT scandal was launched this autumn.
The Capture Redress Scheme will provide payments of up to £300,000, and more in “exceptional” cases, to former postmasters who suffered financial losses.
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