The below is Google translated from Korean webpage, Dealsite, published a few days ago. Interestingly, it indicates that Hanwha remain committed to the acquisition of Austal, and have not "established a strategy for failure of the Austal acquisition."
This article below was also published prior to the weekend news of Hanwha acquiring Philly Shipyards in a $USD 100 million deal. Personally, I think the the acquisition of Philly is a good indicator of Hanwha's ambition in acquiring US shipyards.
"As Hanwha's acquisition of Austal, an Australian shipbuilding and defense company, is facing difficulties, attention is focused on 'Plan B'. First of all, Hanwha Ocean and Hanwha Group have not yet established a strategy to prepare for the failure of the Austal acquisition. However, investment banking (IB) and the shipbuilding industry believe that Hanwha is looking for various ways as it has been seeking to enter the U.S. ship market such as warships and high-speed boats through the acquisition of Austal.
On the 18th, an official in the IB industry said, "The U.S. government is recommending that Austal sell the company to a U.S. private equity fund out of concern about the leakage of its warship construction technology." He explained, “This is because our status as a warship design and construction company is recognized enough to warrant arrest.” He added, “If Austal accepts the U.S. government’s proposal and sells it to a local private equity fund, there is a possibility that Hanwha will participate in the form of investing equity in the private equity fund.”
This outlook is not unrelated to Hanwha's purpose of acquiring Austal. Hanwha's ultimate purpose of the acquisition is to not only mass produce warships for the U.S. Navy by acquiring Austal's U.S. shipyard, but also to enter the ship maintenance and maintenance (MRO) business worth 19 trillion won. In other words, the IB industry's view is that as the intention is to expand the business more efficiently and quickly through the acquisition of local companies, a link will be created through equity investment.
On the other hand, since an alliance with an American private equity fund is not easy, there are also speculations that Hanwha will seek to acquire other shipyards located locally. In addition, if the company starts looking for a shipyard other than Austal, it is expected that Hanwha Future Proof, a North American investment corporation established through a 50% equity investment each in Hanwha Aerospace and Hanwha Solutions, will be at the forefront.
Another IB industry official said, “Hanwha can use Hanwha Future Proof as an outpost to enter the U.S. ship MRO market,” adding, “Hanwha Future Proof plans to secure KRW 1.3114 trillion in cash through paid-in capital increase at the end of this year.” He said, "Considering that last month, Joo Young-jun, former director of the Ministry of Trade, Industry and Energy's industrial policy office, who was a vice ministerial official at the Ministry of Trade, Industry and Energy, was hired as president, it is interpreted that the company has strengthened its government relations capabilities to prepare in case the acquisition of Ostal fails."
Meanwhile, there are predictions that Hanwha will engage in all-out lobbying, separate from the acquisition of the shipyard, to secure MRO volume for U.S. Navy ships. An industry official said, “Hanwha will actively target the U.S. Secretary of the Navy’s discretionary power to independently allocate MRO volume,” adding, “This is especially true because Navy MRO orders are mainly won through lobbying.”
Some are skeptical that it will not be easy to acquire not only Austal but also a local shipyard in the United States. Another industry official said, "Hanwha's approach to entering the business through mergers and acquisitions (M&A) is significantly different from the U.S. calculation method," and added, "What the U.S. wants most is investment in local construction and technology transfer, so Hanwha Austal “Even if we succeed in acquiring shares in a local shipyard, we will only get a return on our investment,” he predicted.
Meanwhile, the United States is feeling a serious sense of crisis not only about its naval power but also its shipbuilding capabilities itself. In particular, apart from the inferiority in the number of ships it has compared to China, its construction performance is overwhelmingly lagging behind. The capacity to build not only large merchant ships but also next-generation eco-friendly ships is close to zero, and some are even saying that the country is 30 years behind China in total."
ASB Price at posting:
$2.40 Sentiment: Buy Disclosure: Held
(20min delay)