Hanwha unlikely to launch hostile takeover bid for Austal

Hanwha has put forward a strong case as to why it would be the right owner of Austal, vowing to improve the company’s shipbuilding capabilities.

Hanwha vice-chairman Dong Kwan Kim is understood to have been approached internally within the company by his own executives about his interest in securing a minority stake in the Australian naval shipbuilder Austal.

However, when sounded out about his willingness in becoming an owner of 49 per cent, he rejected the possibility, say sources, in what some are interpreting as a signal that a hostile takeover bid for the Australian-listed naval shipbuilder is unlikely to unfold and it is known not to be Hanwha’s preference.

Hanwha made a $1bn buyout proposal earlier this year, but it was rejected by the Australian listed company on the grounds it would not gain Foreign Investment Review Board approval and Austal sources also say the price was too low.

Its offer was via a scheme of arrangement structure where shareholders vote on a proposal recommended by the company’s board.

Defence Minister Richard Marles has since said the Australian government would not stand in the way of a deal.

However, Hanwha’s disinterest in owning a minority share likely means it will not use a takeover bid structure to buy the company, where it buys shares on market to gain the largest stake it can to exert influence, although it has not publicly ruled this out.

Hanwha Group vice chairman Dong Kwan Kim.

While Australian business representatives remain eager for South Korean companies to embark on joint ventures with Australian groups to partner together and share expertise, it is not seen as the preferred ownership model for South Korean business conglomerates such as Hanwha, say sources.

Billionaire Andrew Forrest owns just over 19 per cent of Austal and plans to nominate a director at the company’s next annual general meeting.

While Dr Forrest has offered no comment on Austal, the move suggests he may be open to a deal on the right terms.

His decision to gain board representation came after Austal’s chairman and founder John Rothwell moved into the position of director and Richard Spencer became chairman.

Hanwha has been trying to gain due diligence access for Austal, but the latter is requiring it to pay a substantial break fee, which it sees as unreasonable.

The South Korean group has put forward a strong case as to why it would be the right owner of Austal, vowing to improve the company’s shipbuilding capabilities at Henderson, Western Australia, where Austal is already completing government contracts and Hanwha is championing its own speed, scale and leading manufacturing technology.

The South Korean group, which this week briefed Australian journalists at one of its South Korean sites as part of media exchange program hosted by The Walkleys Foundation, counts itself as a trusted partner on matters of defence with the Australia and US governments.

All up, Hanwha has already won up to $8bn from the Australian government in terms of defence work through its business set up in 2019, Hanwha Defence Australia.

It comes as Australia equips its military amid heightened tensions globally with Ukraine and Russia and the threat of an invasion of Taiwan by China, following a South Korea strategic alliance deal signed under former prime minister Scott Morrison.

Hanwha is currently manufacturing Huntsman self-propelled howitzers and Redback Infantry Fighting Vehicles for the Australian Army.

It is also one of five groups shortlisted for the Royal Australian Navy’s SEA 3000 General Purpose Frigate, with Hyundai, Japan’s Mitsubishi Spain’s Navantia and Germany’s TKMS, with an outcome likely by the end of the year.

Its battle for Austal has been heating up just one month before it opens its new 32,000 square metre manufacturing facility in Geelong for guns and other military equipment.

Hanwha is the seventh largest family-run South Korean conglomerate, with Kim Dong-kwan the eldest son and heir apparent to chairman Kim Seung-youn

It moved into the area of shipbuilding just over a year ago with the acquisition of DMSE from Daewoo for $US1.45bn and renamed the unit Hanwha Ocean, the Hanwha unit bidding for Austal and separate to Hawha Defence Australia.

Shipbuilding as well as renewable energy are believed to be two areas of strong interest of Kim Dong-kwan.

This year, Hanwha also bought US based Philly Shipping, which carries out work for the US defence force.

Hanwha has $US65.3bn of annual revenue as at 2022 and is the largest maker globally of self-propelled howitzers.

South Korea is one of Australia’s largest trading partners.