The Austal Ltd (ASX: ASB) share price is up 10% on news after the shipbuilder received a takeover offer.
Austal describes itself as Australia’s global shipbuilder and defence prime contractor designing, constructing and sustaining some of the world’s most advanced commercial and defence vessels.
Takeover offer
Austal revealed that it received an “unsolicited, conditional and non-binding indicative proposal” from Hanwha Ocean Co to buy Austal. Hanwha is a large South Korean business.
Under the offer, Austal shareholders would receive $2.825 per Austal share, which is a 16% premium to the current Austal share price.
However, the offer is subject to a number of conditions including due diligence, various regulatory approvals including Australia’s Foreign Investment Review Board, the Committee on Foreign Investment in the United States (CFIUS) and the US Defense Counterintelligence and Security Agency.
Austal said it took considerable time and spent resources on deciding whether it should grant a potential purchaser access to the company’s otherwise confidential detailed financial records, forecasts and contracts as part of a due diligence process.
The ASX share assesses a range of factors, including the potential for shareholder value creation, competition concerns and a potential purchaser’s ability to ultimately complete a transaction (which would include necessary government approvals).
Government approvals are particularly relevant consider it designs and makes defence vessels for the Australia and US navies and there are ownership clauses associated with those defence contracts.
A few months ago, the company signed an agreement with the Australian Government and the Department of Defence, enabling the company to negotiate strategic shipbuilding agreement where Austal would be appointed Australia’s strategic partner for vessels to be constructed in Western Australia.
At the time, the Commonwealth Department of Defence noted that a sovereign and enduring naval shipbuilding and sustainment at Henderson is “central”.
Austal board shares its response
The Austal board, together with advisers, looked at the proposal and engaged with Hanwha about whether it would be able to obtain approvals in Australia and the US to proceed.
At present, Austal said it’s “not satisfied that these mandatory approvals would be secured”. The company is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved.
It will be interesting to see what happens from here, though it does seem an uphill challenge to get a deal across the line.
