Revelations that South Korean conglomerate Hanwha Group has sought regulatory approval to increase its recently acquired ($183 million) 9.9% holding in Austal (ASX: ASB) to 19.9%, raise speculation that the Aussie defence stock could be yet another quality ASX blue-chip destined to exit the main board.
Hanwha’s initial 9.9% stake in Austal saw the Korean conglomerate acquire 41.2 million shares in the shipbuilder at $4.45 per share.
This represents a 16.2% premium to Austal's closing share price on Monday of $3.83.
But while a 19.9% stake in Austal is just under the 20% threshold before Australia’s takeover rules kick-in, the South Korean conglomerate doesn’t have the field to itself when it comes to a future Austal acquisition.
The Forrest family’s 19.9% stake in Austal, through its private company Tattarang, may prevent the Seoul-headquartered Hanwha Group - should it become a majority shareholder in Austal - from moving to 100% ownership.
Meanwhile, Hanwha’s management notes the Korean company does not intend to make a takeover bid for Austal "at this time".
Former suitors
However, Hanwha Group – the world’s 19th largest defence contractor - revealed its underlying strategic interests in Austal after making a failed $1 billion bid - including now fewer than three non-binding indicative offers - to take over the Australian and U.S. navy shipbuilder last year.
While there was some speculation that Hanwha may have been willing to up its offer to about $1.5 billion, Austal’s market cap has virtually doubled in the last 12 months to $1.7 billion.
However, a revised offer from Hanwha was never tested.
Austal refused due diligence over doubts the Korean conglomerates' board could gain security clearance from Australia and the U.S.
But Australian Defence Minister Richard Marles' comments at the time showed the government had no problems with the bid.
This must have been music to the ears of Hanwha and four other suitors that circled the stock in 2023/24.
Security clearance hurdles
However, it’s alleged that Hanwha was also discouraged from advancing its offer after Austal demanded a $5 million fee if Australian or American regulatory approvals proved risky.
Whether Forrest’s family interests make a play for Austal now before other suitors resurface remains to be seen.
However, sources at Tattarang share brokers view that Austal is undervalued.
Meanwhile, Hanwha also wants to join Forrest’s Brent Cubis with its own seat on Austal’s board.
Any future play by either Forrest’s Tattarang or Hanwha may bring former suitors back to the bidding table.
These included New York’s JF Lehman & Company (with Morgan Stanley), Cerberus Capital Partners (Citi) and Arlington Capital Partners.
Recent results
Austal shares have been on a tear, up 94% over one year and 32% year to date, while the ASX300 is up 1.52% in one year and down 4% year to date.
For the 12 months to June 30, Austal reported profits after tax of $14.9 million compared to a net loss of $13.8 million in the previous year.
Revenue was down slightly at $1.47 billion, while earnings increased sharply to $56.5 million.
The stock recently raised US$300 million in the debt market to fund a ($441.3 million) expansion in the U.S.
Despite the near term weakness the stock is showing, it appears to be in a long term uptrend confirmed by multiple indicators.
Consensus is Moderate Buy.
This article does not constitute financial product advice. You should consider independent advice before making financial decisions.
