There is consternation in the Hanwha camp over Austal’s refusal to grant it due diligence

There is consternation in the Hanwha Ocean camp around Austal’s rapid dismissal of its takeover approach on regulatory grounds, sources close to the company say.

The Austal-built US Apalachicola, which is the largest optionally crewed surface vessel in the US Navy.

There is consternation in the Hanwha Ocean camp around Austal’s rapid dismissal of its takeover approach on regulatory grounds, given Defence Minister Richard Marles’ previous encouragement of a deepening in defence ties between Korea and Australia, the integral involvement of other foreign defence primes in the Australian industry, and the fact that the regulatory decision is not Austal’s to make.

Former defence minister Christopher Pyne, who now lobbies under the banner Pyne and Partners representing several companies with a dedicated defence focus or those wishing to win bids in the sector, registered as Hanwha’s Australian lobbyist this week, as Hanwha seeks to encourage Austal to engage in a closer dialogue.

Austal rejected Hanwha’s $1bn, $2.825 per share bid this week on the grounds that it would fail to win necessary regulatory approvals, including from Australia’s Foreign Investment Review Board.

“The board, together with its advisers, has considered … whether the transaction described in the indicative proposal would obtain the relevant regulatory approvals in Australia and the USA to enable it to proceed,” Austal said in a statement.

“At present Austal is not satisfied that these mandatory approvals would be secured.”

Hanwha Defence Australia’s Redback Infantry Fighting Vehicle.

But Hanwha is understood to have interpreted comments made by Deputy Prime Minister and Defence Minister Richard Marles at the Seoul Defence Dialogue last year as supportive of South Korean investment in the Australian defence sector.

“As mature liberal democracies, I’m convinced the strategic defence relationship between Australia and South Korea can go from strength-to-strength and is full of opportunities

to deepen it even further,’’ Mr Marles said in October.

“I’m visiting here for the second time in a year to act on that conviction.”

There is also the fact that UK-based companies BAE Systems and Babcock are deeply enmeshed in the Australia’s forward shipbuilding programs, with BAE set to build the country’s next-generation frigates, while other primes such as Thales also have major work programs in Australia.

Add to that the fact that Hanwha has won FIRB approval for previous deals and is building Australia’s next generation infantry vehicles at a purpose-built facility in Geelong under a $4bn deal with the government, and Austal’s refusal to engage more closely on the offer is difficult to understand, sources close to the deal say.

Andrew and Nicole Forrest’s Tattarang investment vehicle, along with chairman and founder John Rothwell would hold the whip hand in any deal, holding 19.6 per cent and 9 per cent of the company respectively.

Tattarang, which owns a stake worth about $200m at the bid price, declined to comment on the offer on Wednesday.

Both the Department of Defence and Mr Marles declined to comment on the Hanwha offer on Wednesday.

Austal has left the door open for further talks, telling the ASX it “is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved’’.

Hanwha owns the world’s second-largest shipyard, at Okpo in South Korea, and has been building ships for more than 50 years, with experience across warships and submarines for its own country as well as for the UK and Norway.

Various other suitors are known to have been circling Austal for some time, including US private equity, with the company in June last year taking to the ASX to water down speculation corporate activity was afoot, while also saying it was “regularly involved with potential parties concerning strategic initiatives to create value for its shareholders’’.

Austal shares closed 2.1 per cent lower on Wednesday at $2.38, well shy of the bid price.