It appears Street Talk’s eagle eye missed one defence major lurking in the data room of takeover target Austal.
It is understood Hanwha, the Korean conglomerate which operates in sectors ranging from explosives and aerospace to finance, energy and retail, is working through due diligence and has hired Macquarie Capital banker Stuart Owen to provide advice.
Hanwha acquired control of Daewood Shipbuilding and Marine Engineering this year. Getty
Street Talk has already reported significant interest in Austal, the ASX-listed shipbuilder with five shipyards in four countries including the United States, Australia, the Philippines and Vietnam. JPMorgan and Perth’s Poynton Stavrianou are running the sales process for Austal, which confirmed the inbound approaches last month.
The takeover interest has buoyed Austal – as have recent deals with the US Navy – with shares rising 15 per cent in the last month to close at $2.65 on Monday. They have risen some 29.9 per cent since January 1, giving the company a market capitalisation of around $960 million. Austal’s largest shareholder is Fortescue Metals chairman Andrew Forrest.
Hanwha’s defence and aerospace division is so far the only interested party outside the US. It faces competition for Austal from New York’s JF Lehman & Company, which specialises in investing in complex and regulated sectors, which has Morgan Stanley on hand to assist with due diligence. Then there’s Cerberus Capital Management, a $US60 billion ($88 billion) alternative asset investor, which has engaged Citi as it considers making an offer, while Washington’s Arlington Capital Partners is also interested.
Hanwha, which is listed in Korea and has an enterprise value of about $42 billion, has aggressively expanded into shipbuilding this year, acquiring a controlling interest in Daewoo Shipbuilding & Marine Engineering, one of South Korea’s three major shipbuilders, in May. Hanwha secured a 49.3 per cent stake in the company for $US1.49 billion ($2.24 billion). Daewoo Shipbuilding has subsequently changed its name to Hanwha Ocean.
The interest in Austal, sources with knowledge of discussions said, was primarily around the company’s US business. While that division has had a bumpy year – three former executives have been accused of orchestrating an accounting fraud scheme – the company has more recently won a contract to design and build surveillance ships that could be expanded to a value of some $US3.2 billion. And, despite the intense private equity interest, Austal shares still trade at a discount to US-listed shipbuilders including Huntington Ingalls, General Dynamics and Lockheed Martin.
Austal reported revenues of $775 million for the six months to December 31, but sunk to a net loss of $7.3 million, down from a profit of $45.1 million for the same period last year. Most of that fall was due to provisions taken in the US, the company told investors.
But the biggest opportunities are still to come – the AUKUS defence pact between Australia, the US and the United Kingdom. As part of that agreement, Australia will spend up to $368 billion over the next three decades to buy a fleet of eight nuclear-powered submarines, becoming just the seventh country to operate them.
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JF Lehman is a middle-market private equity firm focused on aerospace, defence and maritime sectors. It has some $US4 billion in assets under management.
The New York-listed private equity fund is no stranger to Australia, recruiting former Macquarie operative David McWilliam as its country head in 2019.
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