Hanwha drops Austal takeover bid

SYDNEY — South Korean defense giant Hanwha has dropped its bid to buy Australian shipbuilder Austal, a merger that would have had major implications for global military shipbuilding.

The proposal, announced by both companies in dueling press releases in September last year, would have seen the world’s 19th largest defense contractor add the 80th largest defense contractor to its portfolio. It would also have bolstered the increasingly close defense and national security ties between Seoul and Canberra. following Australia’s potentially $7 billion deal to buy Hanwha’s Redback land vehicle, and represent yet another wave of growth for South Korea’s defense industry.

And yet, there have been signs throughout the year that Austal was less-than-enthused about the unsolicited bid, leading to a sometimes public back and forth between the companies about regulatory concerns.

Hanwha informed Austal CEO Richard Spencer of the decision in a Sept 25 letter, obtained by Breaking Defense, headlined simply “Termination of discussions with Austal.” News of the dropped bid was first reported by the Australian Financial Review

“Since submitting its first NBIO on 15 September 2023, Hanwha has sought to constructively engage with the Austal Board. We have submitted three revised NBIOs, agreed to a 12-month standstill, and conducted preliminary US and Australian regulatory approval reviews, which we have clearly conveyed to you has only increased our confidence,” the letter from Hanwha Ocean CEO Hyek Woong Kwon said

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In the letter, Kwon specifically called out Austal’s “insistence” that Hanwha “pay a US $5 million fee at any time in the transaction process if Austal forms the opinion that regulatory approval will not be obtained. This is unprecedented in the context of a public markets transaction, and is a wholly unreasonable condition on due diligence access.”

Hanwha made three separate bids and was met with Austal’s demand that Hanwha pay the $5 million fee should it appear Australian or American regulatory approval was at risk.

In addition, Kwon stated that “Austal, after first agreeing to provide site visit access, subsequently cancelled without prior notice or explanation two days before the visits were scheduled.”

Australian Defense Minister Richard Marles said in early May the government had no problems with the bid but knew that security guarantees would have to be put in place to protect sensitive technology should the deal go ahead.

A spokesperson for Austal did not immediately respond to a request for comment from Breaking Defense. However, in a comment to the Australian Financial Review, a spokesperson said, “When Austal informed it shareholders in April that it had received an indicative, conditional, non-binding offer from Hanwha, the company was very clear that the Austal board and advisers were not satisfied that mandatory approvals for the transaction to proceed could be secured by Hanwha.”