Market enthusiasm for Austal share raid ‘premature’

The launch of the first of Austal’s 21 new Guardian Class patrol boats in Western Australia.

Austal’s share price soared almost 9 per cent on Tuesday following Monday night’s raid by the ship builder’s persistent Korean suitor, Hanwha, but could the market be getting ahead of itself?

On the one hand aspirations to gain 19.9 per cent – the limit a group can obtain before it must launch a bid – suggests that Hanwha could want more than just the benefits of Austal’s performance.

But it’s tried at least three times before to buy the business and a deal has never progressed.

And while founder and former chairman John Rothwell, who remains a director and has been offloading shares, may no longer have the same grip on the company he has had in the past, the company still has billionaire investor Andrew Forrest as a 19.9 per cent shareholder through his family’s private company, Tattarang.

When Hanwha was trying to buy Austal in the past, DataRoom understands that the Korean group was offered the opportunity to take a minority interest in the business but declined, and under Mr Rothwell’s watch as chairman its offers were constantly rejected.

The latest deal results in it doing just that but perhaps saving face.

Austal is a company considered sensitive in nature because it is a major contractor to the Australian and US navies and defence forces.

However, the Australian government has previously indicated that it would not stand in the way of the Koreans buying the business.

Whether Austal should be in foreign hands has still been a lively topic of debate, particularly at a time of heightened geopolitical instability.

Yet Hanwha is one of the best ship builders in the world and Austal could benefit from its expertise.

The pair could perhaps carry out joint projects.

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

Citi analysts said Hanwha missed out on building Australia’s frigate (which will be built at Henderson, potentially by Austal, as part of the Strategic Shipbuilding agreement with a German or Japanese design).

Austal confirmed on Tuesday Hanwha now owns 9.9 per cent of it and has a further 9.9 per cent by way of derivatives.

The shares closed 7.6 per cent higher on Tuesday at $4.12.

As outlined in a term sheet sent to investors on Monday night, it has aspirations of owing 19.9 per cent, subject to approval from the Foreign Investment Review Board.

Analysts at Citi believed that the timing of Monday’s raid could be somewhat opportunistic following the sale of 41 per cent of John Rothwell’s stake that increases the group’s free float and pushes the stock closer to ASX 200 inclusion in the near term.