Ball Corp.: Announces Sale of Aerospace Business in Favorable Deal

Before market open on Aug. 17, Ball Corp BALL . announced its long-awaited agreement to sell its aerospace business for $5.6 billion in cash to BAE Systems, a British defense company. The sale price is slightly higher than the rumored $5 billion price tag, but we think BAE was likely willing to pay up for Ball’s formidable aerospace business amid strong interest from other defense companies and private equity firms, given BAE can likely achieve synergies with its current aerospace operations. The sale price values the business at approximately 19.5 times last-12-months comparable EBITDA, which we think is a favorable price for Ball. As such, we have increased our fair value estimate to $58 from $55 per share.

In recent years, Ball has increased its focus on its aluminum beverage packaging business as the company worked to become a leader in eco-friendly packaging. Ball sold 51% of its steel food and aerosol assets in 2018 to form Ball Metalpack, which it then sold to Sonoco in 2022. The sale of its aerospace business is another step in Ball’s plan to become a pure-play aluminum packaging manufacturer. Despite the stability and profitability of Ball’s aerospace business, we are encouraged by this sale, as management will now be able to focus on maximizing the company’s competitively advantaged aluminum packaging business. We maintain our view that aluminum cans will benefit from a long-term shift toward eco-friendly packaging, and Ball is well positioned to capitalize on this trend.

Management expects the deal to close in the first half of 2024, and we think the deal will close as proposed. Additionally, we maintain our narrow moat rating for Ball, as the deal does not affect the durable competitive advantages of its aluminum packaging business. Ball expects to use roughly half of the proceeds of the sale to pay down some of its existing debt, while returning cash to shareholders via its dividend and share repurchases.