Established in 1880 as a manufacturer of glass jars for home preservation of fruits and vegetables, Ball Corporation (BALL 6.65%) today has moved on to specialize in metal cans, primarily as a supplier to beverage companies such as Anheuser-Busch, Molson Coors, and Coca-Cola. In fiscal 2022, cans accounted for 82.5% of the company's revenue, and nearly 90% of its profits.

In short, Ball Corporation is a can company...with a twist.

Twisting off the space biz

That twist is its Ball Aerospace subsidiary, a manufacturer of satellites, sensors, and ground-station control hardware and software. The aerospace division contributes only a small amount of Ball's sales and an even smaller proportion of its profits -- and even that, not for long perhaps.

In mid-June, rumors began floating that Ball might sell its aerospace unit. Britain's BAE Systems (BAES.Y 1.40%) and America's Textron (TXT 1.90%) were both said to be interested, along with several private equity firms. In the weeks since, the field of interested parties has only grown.  

Last week, Reuters reported that aerospace and defense heavyweight General Dynamics (GD -0.17%) has entered the mix of companies bidding for Ball's subsidiary. And two private-equity bidders were named: Blackstone (BX -0.03%) and Veritas Capital.

Any of these five -- or another bidder as-yet unknown -- could end up owning Ball Aerospace if they can come up with the reported $5 billion it will cost to acquire the subsidiary. (None of the five currently have that much cash on hand, however, according to data from S&P Global Market Intelligence, although BAE comes closest.)

In the meantime, as we await the results of the bidding, what I find more interesting is what this sale might mean for Ball Corporation itself.

A big ball of debt

Consider Ball's current condition. It's profitable but arguably overpriced at a valuation in excess of 39 times trailing earnings, and it carries a massive debt load of $10.1 billion against a cash balance of only $572 million. Worse for Ball, the company has been free-cash-flow negative for more than a year and has burned through more than $800 million in cash over the past 12 months.

Unless something changes, that's going to make it hard for Ball to make much of a dent in its debt load. However, if it can unload Ball Aerospace for $5 billion (or more), that could have an impact and free Ball from an underperforming subsidiary at the same time, permitting it to focus on the business it's relatively better at: cans.

What's more, the $5 billion sale price that Reuters suggested for Ball Aerospace could turn out to be conservative.

Consider that over the past 12 months, Ball Aerospace generated just under $2 billion in revenue. Were the parent company to sell it for $5 billion, that would work out to only a 2.5 price-to-sales ratio.

However, as I've often noted this year, valuations in the space sector on average tend to be richer than that. While it's true that L3Harris was able to win the bidding for Aerojet Rocketdyne at only a 2.1 sales multiple last year, Advent International had to pay 4 times sales to acquire Maxar Technologies. What's more, just a few years back, Aerojet itself offered to pay 4 times sales to acquire space giant United Launch Alliance.

So while it's certainly possible that someone could end up paying a bargain 2.5 sales multiple for Ball Aerospace, it's also possible that Ball could receive 3 or even 4 times sales for its subsidiary -- yielding a sale price as high as $8 billion.

A big bargain in Ball

Now what would that mean for Ball investors? Hypothetically, let's say Ball succeeds in selling its subsidiary for $8 billion. In that case, the cash from the sale could wipe out nearly 80% of the parent company's debt load, resulting in an aerospace-less Ball valued at approximately $19.2 billion.

Operating income at the company is $1.3 billion currently, which would shrink to about $1.1 billion without Ball Aerospace's contribution, resulting in an enterprise valuation of about 17.5 times operating earnings for Ball as a cans-only company.

When you compare that valuation to Ball's anticipated long-term earnings growth rate (about 14%) and the company's 1.4% dividend yield, that seems a much more reasonable price to pay for Ball than the company's current price-to-earnings ratio of 39.

So whoever wins the bidding for Ball Aerospace, the biggest winner in this sale could turn out to be Ball itself -- and its shareholders.