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Morningstar | Ball's Integration of Rexam's Assets Will Allow Continued Cost Cutting and Wider Margins

Ball is the world's largest producer of aluminum beverage cans. Used primarily for carbonated soft drinks and beer, aluminum cans are a low-growth industry, but one with favorable competitive dynamics for incumbents. We believe the completed merger with Rexam will create value for shareholders, but is unlikely to materially alter the competitive landscape because regulators required large divestitures in North America and Europe.Ball’s beverage business makes up 85% of its revenue. Of beverage segment sales, about half originate in North and Central America, 20% from South America, and 30% from Europe. Relative to its largest peer, Crown, Ball has greater exposure to developed markets, where falling carbonated soft drink and mainstream beer volumes will likely weigh on demand. A mix shift from bottles to cans among craft brewers and modest population growth are likely offsets. Ball's acquisition of Rexam highlights management's focus on investment in emerging markets, where discretionary income growth ought to drive higher consumption of processed foods, including beer and soft drinks. After completing the merger, Ball has increased its exposure to emerging markets, primarily in South America.We believe the purchase of Rexam will create value for shareholders, thanks to consolidated back-office and supply-chain efficiencies. Given that divestitures were required in regions where the combined entity's market share would be uncomfortably high, we doubt the Ball-Rexam tie-up will meaningfully change regional market concentrations.Ball also runs a fairly small aerospace business and owns 49% of its former U.S. food and aerosol can business, now known as Ball Metalpack. Its aerospace segment is fairly well known for its satellite capabilities in both government and private capacities, earning fairly consistent margins and growing at a rapid clip as management invests in this niche business. Together, its nonreportable operations and aerospace business make up just over 15% of revenue.