Australia’s only listed defence company is at the centre of a dealmaking tussle likely to shape Washington and Canberra’s ability to respond to China’s maritime military build-up.
Perth-based Austal is resisting takeover efforts by South Korea’s Hanwha Ocean, one of the world’s biggest shipbuilders, which says its ownership would boost Australia’s shipbuilding prowess as China increases its naval power.
Austal’s board rejected a bid last year on valuation grounds, and in March said a second, $1bn bid had no realistic prospect of approval by Canberra or Washington due to “ownership clauses associated with defence contracts” in Australia and the US, where Austal also has two shipyards and carries out work for the US Navy.
Austal’s Henderson shipyard near Perth, on the shores of the Indian Ocean, is considered vital to Australia’s plans to double the size of its naval fleet with an extra A$11.1bn ($7.2bn) of investment.
But the Korean conglomerate was heartened when Australian defence minister Richard Marles said after a meeting with his South Korean counterpart in Canberra earlier this month that “from the [Australian] government’s perspective, we don’t have any concern about Hanwha moving in this direction”.
Lee Yong-ook, the head of Hanwha Ocean’s naval shipbuilding business, told the Financial Times that a takeover would boost Australia’s ability to produce ships capable of taking on the Chinese navy.
“Austal specialises in building aluminium ships, which is good when you are building passenger ferries but no good for countering Chinese battleships,” Lee told the FT.
“Our efficiency is higher [than Austal’s] and our ships are all steel-based,” he added. “We will meet [Canberra’s] requirements on sovereignty and we will transfer ship design knowhow and production capacity to Australia.”
Lee said Hanwha had discussed its bid with senior Australian and Western Australian officials, naval industry representatives and politicians from Australia’s governing and opposition parties, as well as with “senior US government representatives”.
“The clear message we received was that, based on the South Korea-Australia alliance and Hanwha’s experience and track record, there would be no adverse implications for either Australia or the US from Hanwha acquiring Austal,” said Lee.
Lee also said Hanwha’s superior resources and capabilities would assist the US in increasing its naval shipbuilding capacity, as Washington seeks to close the gap with China, which has more than 20 shipyards compared with seven in the US.
He added that Hanwha would be able to offer the US Navy upgraded “maintenance, repair and operation” capabilities at its home shipyard in South Korea and potentially at Austal’s shipyards in the Philippines and Australia, which would assist the US Navy in the event of a conflict in the South China or East China Sea.
Austal had an order book worth A$11.6bn ($7.6bn) last year, but its market capitalisation is less than A$1bn and it is wrestling with governance issues after three executives at its US division were charged with accounting fraud by the US Securities and Exchange Commission in 2023.
Australia introduced plans this month to tighten up foreign ownership rules for specific sectors including defence. But Anthony Kavanagh, co-founder of Chester Asset Management, a substantial shareholder in Austal, said Marles’s statement had opened the door to a third approach.
Cerberus, a US private equity firm that specialises in distressed assets, is among the rival suitors for the shipbuilder.
“We could be at the start of a bidding war,” said Kavanagh, arguing Austal should engage with its potential suitor but that a higher price than the latest cash bid worth A$2.82 a share would be justified, given the company’s order book. “We are optimistic of getting close to $4 a share,” he said.
Austal’s largest shareholder is Tattarang, the family office of billionaire Andrew Forrest, who has a near-20 per cent stake in the business and was linked with a potential takeover when he built the holding in 2022.
According to one person with knowledge of the situation, Tattarang thinks the Hanwha bid undervalues the shipbuilder significantly. Tattarang declined to comment.
A Sydney-based banker said that Hanwha, advised by a lobbying firm established by former Australian defence minister Christopher Pyne, had “built credibility” in Canberra with a series of contracts as part of South Korea’s global defence exports push.
Hanwha’s land defence division signed deals last year with the Australian government to build Redback infantry fighting vehicles and self-propelled Huntsman howitzers in the country.
But Ian Christie, an analyst with stockbroker Argonaut, said Hanwha still faced “a long road” of regulatory barriers including Australia’s Foreign Investment Review Board overseen by the Department of the Treasury.
Australia’s defence department said the Treasury would assess the impact of any proposed takeover. “Proposals are assessed by the Foreign Investment Review Board on a case-by-case basis and this would be no different,” it said.
Jennifer Parker, an associate at the Australian National University’s National Security College and a former naval officer, said that a sale of Austal to Hanwha needed to be considered through the lens of Australia’s plans to boost the country’s sovereign shipbuilding capability.
“There’s no reason why Australia couldn’t become a shipbuilding powerhouse and a relationship with Hanwha could help with that,” she said, while adding there was a risk the Korean company could buy Austal and mostly focus on its US assets. “The key question to ask is what is Hanwha’s intent?” she said.
Additional reporting by Demetri Sevastopulo in Washington and Antoine Gara in New York