Australian shipbuilder Austal Ltd. says that discussions about a possible sale of its U.S. subsidiary, Austal USA, are ongoing.
Austal USA’s Australian parent company provided a brief update to investors Wednesday, addressing two potential billion-dollar offers for its Mobile-based subsidiary.
The first of these came from South Korean conglomerate Hanwha. In early August, its subsidiary Hanwha Defense USA Inc. pitched an “indicative, non-binding and conditional offer” to purchase Austal USA for $1.05 billion to $1.2 billion.
Austal Ltd.’s board gave Hanwha the go-ahead to conduct a four-week due-diligence study of Austal USA’s operations. An entourage of Alabama officials visited Hanwha facilities in Korea later in August.
In early September, a Florida-based investment company called Wildcat Infrastructure said in a similarly non-binding proposal that it was willing to pay between $1.25 billion and $1.35 billion.
Since then, speculation has varied as to which offer might be more likely to receive required governmental approvals. Hanwha has experience in military shipbuilding, and its interest appears to dovetail with a Trump administration push to leverage foreign shipyards to speed up American military shipbuilding.
Wildcat has only recently launched a defense business. A Wildcat executive said that its offer represents “American capital.” The company has said it would keep the Austal name.
In a statement released Tuesday, Austal Ltd. said that it had extended the due diligence period for Hanwha “to enable it to submit a formal proposal to acquire the business entities and operations of Austal USA.”
“In addition, commercial negotiations between Hanwha and Austal have commenced regarding details of a potential transaction and Austal is seeking professional advice on the various taxation implications of a transaction,” said the statement. “Regarding due diligence, while the substantive issues in the data room have been closed out, and the original parameters of the transaction have not changed, a tail of lower materiality data requests remains outstanding.”
Austal Ltd. said it “also remains in on-going dialogue with Wildcat Infrastructure LLC in relation to their non-binding indication of interest.”
Austal USA employs more than 3,000 people at its yard in Mobile and has expansion projects in the works that it says will increase that workforce to 5,000 or more. In addition to a variety of Navy and Coast Guard vessels that it launches into the Mobile River, it builds modules that go into Columbia-class and Virginia-class nuclear submarines.
A memorandum from President Donald Trump has opened a path for foreign shipbuilders to win U.S. defense contracts, but to take advantage of it they must build or buy a U.S. shipyard.
Hanwha has already purchased the Philly Shipyard in Philadelphia. But the Wall Street Journal recently reported that winning new business for that yard has been tough, in part because it isn’t economically competitive with shipyards in South Korea or China.
The stakes are high for the U.S. Navy as well as for the companies involved. Austal USA is heavily involved in approaches called modular shipbuilding, in which vessels are built in sections, and distributed shipbuilding, in which multiple shipyards contribute modules to a finished vessel.
While the approaches promise to increase the number of ships built per year, they also increase the logistical complexity of building them. Risks include the possibility that problems at small yards can escalate to delays at larger ones.
A recent report from the U.S. Naval Institute News takes a long look at the Navy’s push toward distributed shipbuilding, as well as the history and risks of the approach. The USNI News report says that “Modular manufacturing is creating new opportunities for Austal’s shipyard, which has a reputation for quality work but has stumbled with management turnover, underbid contracts, a federal investigation and is now up for sale by its Australian parent company.”
It notes that the challenges faced by U.S. shipbuilders include the difficulty of hiring and retaining the workers they need for their projected growth. “Competition in the overheated labor pool along the Gulf Coast between Ingalls, Austal USA and Bollinger Mississippi Shipbuilding — all within a commuting distance of one another — is fierce,” it says.
On the bright side, the Navy’s chief of naval operations, Adm. Daryl Caudle, has spoken very favorably of Austal USA’s work. In January, he cited the yard as a pioneering example of a “paradigm shift” that other shipyards needed to make.
