BAE snaps up Ball's aerospace arm for $5.6 bln in its biggest deal ever

BAE to fund deal using new debt and existing cash

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BAE shares fall as much as 4.9%

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Ball Corp to use proceeds to cut debt, focus on packaging

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Jefferies analysts say deal slightly expensive but good fit

Aug 17 (Reuters) - Britain's BAE Systems on Thursday agreed to buy Ball Corp's aerospace assets for about $5.55 billion in cash, snapping up a key U.S. contractor in areas such as space, national security and intelligence in its largest deal ever.

Reuters had reported in July that private equity firms Blackstone Inc and Veritas Capital Fund Management were competing against defence companies such as BAE, General Dynamics Corp and Textron to buy the business.

Ball's aerospace operations build spacecraft, instruments and sensors for defence and civil satellites that are used among other things to track space objects and monitor weather and climate change.

The war in Ukraine has led to new demand for those in munitions supply chains, Tom Arseneault, head of BAE's U.S. business, told analysts. A shift in priority to the space domain and concerns about the causes of climate change have also steered budgets to space, where instruments and monitoring systems will help understand our impact on the earth, he added.

"It is a theme that we expect to continue, not just with BAE Systems, but across the defence industry as players look to scale up their operations so that they can capitalise on the long term uptick for defence products," Shore Capital analysts said.

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 the business in what could be the UK's biggest deal this year and the British company's largest ever, according to data from Refinitiv Eikon.

Shares in BAE Systems fell as much as 4.9%, while Ball Corp rose 2.7% in premarket trading.

"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.

He also confirmed the 1.5 billion pound ($1.91 billion) share repurchase announced with its half-year results.

The Colorado-based aerospace business made $1.98 billion in revenue and accounted for 13% of Ball's consolidated net sales in 2022.

($1 = 0.7856 pounds) (Reporting by Yadarisa Shabong and Chandini Monnappa, additional reporting by Susan Mathew in Bengaluru; editing by Subhranshu Sahu, Jason Neely and Sharon Singleton)