Austal shares rally on government green light for Hanwha bid

Austal shares have rallied as Defence Minister Richard Marles signalled a green light for Hanwha to buy the country’s naval ship builder.

Austal’s shares closed more than 3 per cent higher on Wednesday on comments from Defence Minister Richard Marles that the government would not block South Korea’s Hanwha buying the country’s naval ship builder.

It comes after a $1bn-plus buyout proposal for Austal, which also contracts to the US defence force, was lobbed in recent months by Hanwha, advised by UBS.

But it was rejected by the $800m-plus company’s board on expectations that a deal would not gain clearance from the Foreign Investment Review Board or regulatory approvals in the United States.

It is understood that the board sought advice from the FIRB on the bid.

The Australian reported on Wednesday that after diplomatic talks between the South Korea Defence Minister Shin Won-sik, Mr Marles, and the country’s two foreign ministers, Mr Marles said the government would not stand in the way of Hanwha’s bid for the Perth-based company, which is Defence’s monopoly shipbuilder in Western Australia.

“In respect of Austal, ultimately this is a matter for Austal. They are a private company,” Mr Marles said.

“From the government’s perspective, we don’t have any concern about Hanwha moving in this direction.”

Austal was named in November as the government’s strategic shipbuilder in WA for the building and sustainment of Defence vessels.

It also has extensive US government contracts, and is a likely partner in WA-based AUKUS contracts.

Hanwha has said it was a “credible buyer”, its offer was “highly competitive” and was of the view it would gain government approval for its purchase.

Mr Marles said any deal involving Austal would require strict security arrangements to protect sensitive technology and intellectual property.

“That would have to be managed no matter what the future of Austal, and were there anything that were to transpire in relation to Hanwha, that would need to be managed in that context as well,” he told The Australian on Wednesday.

“But fundamentally, this is a matter for Austal as a private company.”

On the back of the news, Austal shares rallied before the close, gaining more than 3 per cent to finish up 7c at $2.37.

Austal uses consultant Bondi Partners, the company of the former federal Liberal government treasurer Joe Hockey, to assist with government-related matters.

Insiders say that they were surprised by the comments.

Some in the market on Wednesday were stunned by the defence minister’s comments, given Austal has the blueprints for Australia’s warships, information considered highly sensitive.

Austal was awarded government ship building contracts because it was Australian owned and based on home ground, with local ship building capability, even though it was not the lowest bidder.

However, Hanwha had earlier vowed to keep the ship building capabilities on home soil, although some had been doubtful that would in fact remain the case over time.

Other US-based private equity firms have been circling but it is understood that there were not any suitors currently around the hoop.

Working with Austal are JPMorgan and Poynton Stavrianou.

The understanding is that Austal directors believe the monetary value ascribed to Austal for the Hanwha bid undervalued the company.