Hanwha committed to Austal takeover deal despite rejected bid

Hanwha Ocean Co., the world’s second-largest shipbuilder, said on Tuesday it made a takeover bid for Austal and negotiated the price and terms of the proposed deal, reportedly worth $662 million, but the Australian defense shipbuilder abruptly rejected the offer.

Despite the rejected bid, Hanwha said it remains committed to the deal.

“We studied the relevant factors needed to obtain the government’s approval for acquisition at the request of Austal and agreed to carry out on-site due diligence,” the South Korean company said in a regulatory filing.

“But ahead of the scheduled date, we received a sudden notice of Austal's cancellation.”

The remarks followed media reports that Austal turned down its acquisition offer. Austal confirmed the reports, saying it had received a non-binding indicative proposal from Hanwha to acquire the company.

On Tuesday, Reuters reported that Austal had rejected an A$1.02 billion ($662 million) takeover offer from Hanwha Ocean as it was unlikely to be approved by Australian and US regulators due to the sensitivity of its operations.

The bid represented a premium of 28.4% to Austal's last closing price, according to the report. Its market capitalization before the bid stood at nearly $520 million.

Austal said in a statement on Tuesday that government approval is particularly relevant concerning the proposal from Hanwha, given Austal's position as the designer and builder of defense vessels for the navies of Australia and the US, as well as ownership clauses associated with defense contracts.

“At present, Austal is not satisfied that these mandatory approvals would be secured. However, the company is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved.

Austal is a prime contractor designing, constructing and sustaining ships for the US Navy.

It also signed an initial agreement with the Australian government last November, which would see the company selected as a strategic shipbuilder.

In that regard, to push through the deal, Austal and Hanwha need to get the nod from both Australia's Foreign Investment Review Board (FIRB), the Committee on Foreign Investment in the US (CFIUS) and the US Defense Counterintelligence and Security Agency.

NO DISCUSSIONS UNDERWAY

Hanwha said it is trying to continue talks with Austal’s management and board of directors, but no additional discussions are currently underway.

Hanwha Group, including Hanwha Aerospace Co., has perfected its defense business portfolio from air to land and navy after acquiring Daewoo Shipbuilding Marine & Engineering Co., rebranded to Hanwha Ocean, for 2 trillion won last year.

Austal could create synergy in the naval ship business in Australia and the US, with the chemicals-to-defense conglomerate stepping up efforts to build its presence in Australia's defense industry.

Last December, Hanwha Aerospace secured a $2.4 billion armored vehicle supply order from Australia.
 
According to Yonhap, Hanwha made its first acquisition offer to Austal six months ago and since then revised proposals several times. Hanwha is also said to have selected UBS as an advisor for the acquisition.

"As a global defense group, Hanwha has various product lines across several affiliates, and the combination with Austal is expected to further strengthen the competitiveness of our ships," Yonhap quoted a Hanwha Ocean official as saying.

The share price of Hanwha Ocean slipped 1.24% to trade at 27,900 won on Wednesday morning, wiping out the previous day’s gains. The broader Kospi index dropped 1.35% in morning trade.

In comparison, shares in Hanwha Aerospace, the shipbuilder's largest shareholder with a 23.14% stake, plummeted 7.05% to 224,000 won.

On Tuesday, the stock rallied 17.2% to its record high of 245,000 won on the announcement that it is spinning off non-core units to focus on the defense and aerospace businesses.

Write to Hyung-Kyu Kim at khk@hankyung.com
 

Yeonhee Kim edited this article.