South Korea’s Hanwha withdraws Austal bid

Austal is a key defence contractor to the Australian government.

After a prolonged campaign to convince shareholders and the Australian government it was the right owner of Austal, South Korean ship builder Hanwha has finally walked away from the $1bn Andrew Forrest-backed target and moved on.

It is understood the South Korean company wrote to the Austal board on Wednesday, withdrawing its non-binding, indicative proposal to acquire Austal and ending talks.

It comes two days after Austal announced it had been awarded a $US152m contract by the US Navy to invest in the expansion of its submarine industrial base, just days after being awarded a $US450m contract for Austal’s shipyard at Mobile, Alabama to expand capacity to support the US Navy Submarine Industrial Base.

Hanwha submitted its first non-binding offer in September 2023 for Austal and had put forward three offers in total, including a $1bn bid revealed in April by DataRoom which was advised by UBS.

Hanwha said in its letter it had requested due diligence, agreed to a 12-month standstill and conducted preliminary US and Australian regulatory approval reviews.

It was also granted commercial due diligence on the condition it paid a $US5m termination fee if the US or Australian authorities rejected Hanwha’s purchase, or if Austal believed the regulatory approvals would not be obtained, which it said was “wholly unreasonable”.

Working with Austal, which counts billionaire Andrew Forrest as a 19 per cent shareholder, has been investment banks JPMorgan and Poynton Stavrianou.

Dr Forrest has opted to seek board representation for Austal, which came after its chairman and founder John Rothwell moved into the position of director and Richard Spencer became chairman in recent months.

Austal is a major builder of naval ships for the defence forces in the United States and Australia, with the Commonwealth government recently awarding the business a large pipeline of work as it bolsters its defence capabilities to respond to a more assertive China.

Austal rejected advances from Hanwha, partly on the grounds a deal would not gain approval from the Foreign Investment Review Board, but Defence Minister Richard Marles later said publicly the government would not stand in the way of a bid.

While Hanwha has been confident the US government would not have concerns over Austal falling into its ownership, others have questioned whether that would be the case.

The US business has strict security restrictions, including a rule stating no one from the parent company can attend sites without permission from the Pentagon.

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.

The South Korean group had 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, WA, where Austal is already completing government contracts and Hanwha is championing its own speed, scale and leading manufacturing technology.

It has already won billions of dollars of work from the Australian government in terms of defence work.

Austal is building 10 patrol boats for the Royal Australian Navy and reached an initial deal in November to build 18 landing craft vessels for the Australian Army.

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

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

It has also built a new 32,000 square metre manufacturing facility in Geelong for guns and other military equipment.