Hanwha’s Austal due diligence hanging on break fee dispute
If Korea’s Hanwha is so confident of getting its bid over the line it shouldn’t be concerned about stumping up a break fee, Austal is understood to believe.
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Austal is not keen to spend time and money on a takeover bid that might not get over the line without the insurance of a break fee, which suitor Hanwha is currently unwilling to stump up.
Korea’s Hanwha is confident it can get the deal to buy the Australian shipbuilder through regulators here and in the US, with Defence Minister Richard Marles indicating a month ago that the government would probably not block such a transaction.
Given that is the case, it is understood that it is Austal’s position that Hanwha should forge ahead with its due diligence process if it sees fit, while giving Austal the comfort of a break fee in the meantime.
An offer to allow Hanwha due diligence access was made. However, the Korean company has apparently baulked at the fee involved and is considering next steps.
Austal shares closed on Friday at $2.42, well below the $2.825 a share offered by Hanwha earlier this year, valuing the company at more than $1bn.
Austal rejected the bid at the time on the grounds that it would be unlikely to gain clearance from the Australian Foreign Investment Review Board and the US government on national security grounds.
Some believe that despite the comments by Mr Marles, the government may ultimately still not allow the deal.
Regardless, it is understood Austal’s board takes a view that Hanwha would need to lift its price to secure an acquisition.
On the regulatory front, the message being communicated by Hanwha is that the US is now comfortable with Austal being owned by the South Koreans.
Hanwha’s confidence that it would gain approval from the US is thought to centre on US Defence Secretary of the Navy Carlos Del Toro meeting with top shipbuilding industry executives in Korea.
There, he toured shipyards, with discussions about attracting Korean investment in integrated commercial and naval shipbuilding facilities in the US.
He also met with Hanwha boss Dong Kwan Kim. While there, he emphasised the importance of Korean ship building as an asset to the US and a Korea alliance and earlier said there were opportunities to partner with allies like Japan and South Korea.
Any transaction would need the blessing of billionaire investors Andrew and Nicola Forrest, whose Tattarang Ventures owns a 19.6 per cent stake in Austal.
The Forrests have to date been silent on their views.
Austal chief executive Paddy Gregg presented to a Bell Potter conference last week, saying the company was hoping to be “materially involved” in the Australian government’s uplift in defence shipbuilding as a result of the surface fleet review, which envisages an increase in the country’s frigate program among other initiatives.
The company also recently announced it had been awarded a $779m contract modification by the US government for the construction of the lead ship in the T-AGOS ocean surveillance program.
Austal was awarded a contract that detailed designs for the ship in May last year, with options under the deal for design and construction for up to seven ships. “If all options are exercised the cumulative value of the contract is $US3.19bn,’’ Austal said.
Originally published as Hanwha’s Austal due diligence hanging on break fee dispute
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