Austal Rejects Unsolicited Offer from Hanwha Citing Regulatory Uncertainty

Australian shipbuilding Austal is confirming in a statement Tuesday morning from its Perth headquarters that it received a takeover proposal from South Korea’s Hanwha Group which it is rejecting due to concerns over regulatory approvals. Hanwha immediately fired back calling its bid “highly competitive” and citing that they are a known entity to both Australian and U.S. regulators which would have to approve the deal.

Investors in Australia have long expressed the belief that Austal was undervalued on the stock exchange with a market capitalization of just over A$877 million today (US$570 million). Media reports in Australia are saying that several private equity firms have also expressed interest in Austal due to its low valuation and strong market position. The company has grown from building aluminum ferries to a leading role as a naval supplier in Australia and the U.S., including the addition of steel construction to expand its market position.

Austal reports it has been engaged in discussions with Hanwha while citing that the acquisition would require approval from Australia’s Foreign Investment Review Board as well as in the United States. They also cite the company’s agreement with the Australian government in 2023 to negotiate a Strategic Shipbuilding Agreement and its position with major U.S. projects including the recent awarding of a contract for three U.S. Navy hospital ships.

“At present, Austal is not satisfied that these mandatory approvals would be secured,” the company writes in its statement acknowledging the approach from Hanwha. They termed the offer, “an unsolicited, conditional, and non-biding indicative proposal.”

Hanwha is offering A$2.825 per share. This presents a premium of more than a quarter (28 percent) over the last close for the stock before the news began to leak out. The market responded with a price increase of between six and eight percent for Austal’s shares.

Austal said it carefully considers whether it should grant a potential purchaser access based on the ability to complete the transaction as well as value creation and competition. They however did not close the door entirely to Hanwha.

“The company is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved,” Austal wrote in its response.

Hanwha responded calling itself a “credible buyer” and noted that it has previously received approvals in Australia for investments. It cited its proven track record.

Speculation is unclear on how the Australian government would respond due to the strategic nature of Austal. Analysts are noting the government has blocked some other recent transactions due to concerns over control of technologies.

Hanwha has been known to be looking to expand its role in naval contracting to leverage its position in complex electronic systems including naval combat, SONAR, and weapons. Last year, it was rumored that Hanwha was exploring a bid for U.S. shipbuilder Philly Shipyard. Hanwha also reported it was raising capital after its acquisition of Daewoo Shipbuilding and Marine Engineering (DSME) to fund further expansion targeting the global maritime defense market in the United States and Europe.