BAE bets big on space warfare with $5.6 bln US acquisition

BAE Systems Plc’s biggest purchase ever, the $5.6 billion deal for Ball Aerospace, extends the UK defense contractor’s reach into space, a frontier the company predicts will become increasingly important for warfare.

The Ball Corp. unit’s position in both the civil and military space markets was a key reason BAE’s move, it said. On a conference call, Chief Executive Officer Charles Woodburn signaled he may make more acquisitions in the sector.

“We see space as an increasingly important domain of future war-fare,” Woodburn said on a conference call. “This acquisition really accelerates our position.”

The growing use of satellites for protection and defense is driving up spending, Tom Arseneault, BAE’s US CEO, said on the call.

Ball Aerospace, located in Colorado along with the US Space Command, is an established supplier for major satellite and spacecraft providers, he said. Space has become a bigger priority for the US and UK, along with rival powers like China and Russia, as the domain becomes more contested.

BAE slid as much as 4.9 percent after analysts suggested the company paid a steep premium. The deal could dilute BAE’s profit margins, Deutsche Bank analyst Christophe Menard wrote in a note.

Shares of BAE were off 4.1 percent as of 1:53 p.m. in London, while Ball advanced 4 percent in early New York trading.

For the medium term, the focus will be on the integration of the Ball unit, Woodburn said on the call. The company also makes in-struments and sensors for space travel, weather forecasting and subsystems for missiles and munitions. Bloomberg News reported that BAE was close to a deal on Wednesday.

Space “is an area of the aerospace and defense industry that has been enjoying significant growth in recent years, driven by the shift to more low-earth orbit satellites and a greater emphasis on environment studies,” Vertical Research analyst Rob Stallard said in a note.

Two other major trends portend growth at the acquired business, Arseneault said: more attention to the impact of climate change is driving investment in space-based scientific instruments and monitoring systems, and the war in Ukraine has led to surprisingly rapid munitions drawdowns that have stoked demand.

BAE will also benefit from Ball Aerospace’s relationship with NASA as it helped build the optical technology and mirror system on the agency’s James Webb Space Telescope, which was launched into space in 2021 to take pictures of stars and galaxies.

“This proposed acquisition will expand our footprint in space, extend the complementary set of customer relationships and national security, and offer new access to civil space markets,” Arseneault said.