Austal rejects $800m-plus offer from Korea’s Hanwha

Austal is a major contractor to the Australian Commonwealth government for ship building. Picture: AFP

South Korean conglomerate Hanwha Group is believed to have recently renewed its interest in takeover target Austal, putting forward an indicative offer for the global shipbuilder and defence prime contractor in recent weeks, likely to be over $895m.

It is understood that the offer was at a premium of about 30 per cent to Austal’s share price at the time, and Hanwha was working with investment bank UBS as its adviser.

However, the deal was not disclosed by the Australian listed board because of the high probability that the government would not grant permission for the business to take control of a group carrying out defence contracting work for the Australian Commonwealth government.

Austal signed an initial agreement with the Australian government in November to establish a Strategic Shipbuilding Agreement between Austal and the Commonwealth that will see the company become Australia’s naval ship builder in Western Australia.

If a binding deal is signed, Austal will construct and deliver eighteen 50-metre steel hulled landing craft vessels to the Australian Army, to be constructed at Henderson, plus further large landing craft.

It also has contracts for an additional two Evolved Cape-class patrol boats for the Royal Australian Navy, bringing the total number of vessels to be delivered under the project to 10.

Austal’s shares last traded at $2.20 with its market value at almost $800m, and since the start of the year its share price has ranged from $1.90 to a high last month of $2.23.

Based on the assumption that the offer landed sometime since January, it would put it at more than $895m.

While Hanwha is considered out of the question as an owner of Austal, with the Foreign Investment Review Board likely to block an acquisition based on security concerns, a US-based group may be more palatable, given Australia’s relationship through AUKUS, a trilateral security partnership for the Indo-Pacific region between Australia, the United Kingdom and the United States.

Among the private equity firms that have taken a look at the business in the past are US-based private equity firm Cerberus Capital Management and Arlington Capital Partners.

However, they were spooked last year by a profit downgrade by Austal, which counts Tattarang, the company of billionaire Andrew Forrest, as a 19.6 per cent shareholder.

Hanwha is a large publicly traded business conglomerate, 44 per cent owned by Kim Seung-goun, with the South Korea’s National Pension Service owning 7.61 per cent.

Last year it integrated into its business Hanwha Ocean, which it describes as a leading global company with extensive experience in the shipbuilding and offshore industry.

It is developing so called “green solutions” as part of its shipbuilding technology to achieve energy saving and the use of environmentally friendly fuels.

Austal is a prime contractor that specialises in the design, construction and support of defence and commercial vessels.

Its product range includes naval vessels, high-speed ferries and supply vessels for offshore wind farms and oil and gas platforms.

Its has shipbuilding facilities in Henderson, Western Australia, as well as Mobile, Alabama, while commercial vessels are built in Balamban in the Philippines.

The US business is far larger and over time has been considered more attractive to suitors.

But it has strict security restrictions, including a rule that no one from the parent company can attend sites without permission from the Pentagon.

One possibility is that Austal demerges the US arm, sells it to private equity or relists its business in the United States.

For the six months to December, Austal reported $717.7m of revenue, down 7 per cent due to a lower contribution from Australasia, and a $12m net profit compared to a $7.3m loss in the previous corresponding period.

It has $28.1m of net cash and did not declare a dividend ahead of its large capital spending program to increase shipbuilding capacity and capability.

Austal was contacted by DataRoom for comment.