Hanwha's $1.7 Billion Austal USA Acquisition Faces a Variable as the U.S. Defense Department Sends Mixed Signals [fn Market Watch]

[Financial News] Hanwha Group has emerged as a major bidder in the race to acquire Austal USA, a U.S. shipbuilder and defense contractor, with up to $1.2 billion, or about 1.7 trillion won, on the table. The U.S. Department of Defense (DoD) has now become a late-stage variable in the deal. Hanwha Group is moving quickly with acquisition due diligence led by Morgan Stanley, but local observers say the U.S. government is sending mixed signals about the transaction. Because Austal USA is a key defense supplier to the U.S. Navy and the nuclear submarine supply chain, Washington's decision could determine whether the deal goes through.
According to investment banking sources and foreign media on the 1st, Hanwha Group has appointed Morgan Stanley as its acquisition adviser and is reviewing Austal USA's financial condition, major businesses and contracts through its data room. After examining Hanwha's preliminary, non-binding offer, Austal's board granted a four-week due diligence period.
Hanwha Group is highly determined to complete the acquisition.
At a recent earnings call, Austal CEO Paddy Gregg said Hanwha Group was considering the acquisition "very seriously."
Hanwha Defense USA, Inc. has valued Austal USA at between A$1.05 billion and A$1.2 billion, or as much as about 1.7 trillion won.
The problem lies in the United States. Local reports say the U.S. government is sending mixed signals about Hanwha Group's investment, and uncertainty surrounding the DoD is becoming a factor in the deal. There has been no official move to block the transaction, but Washington's decision remains a key variable in whether it can be completed.
The U.S. government's stance matters because of Austal USA's business profile. Based in Mobile, Alabama, Austal USA is a major defense shipbuilder that constructs vessels for the U.S. Navy and the USCG. Working with General Dynamics Electric Boat, it also produces critical modules for Virginia-class and Columbia-class submarines.
For Hanwha Group, Austal USA is a ticket into the U.S. defense market. In 2024, Hanwha Group acquired Hanwha Philly Shipyard, establishing a foothold in the U.S. shipbuilding industry. While Hanwha Philly Shipyard is focused on commercial vessels, Austal USA would give the company a platform to expand overnight into the U.S. Navy ship and nuclear submarine supply chain.
Austal USA's earnings have also become a variable in price negotiations. The U.S. business posted an annual operating loss of A$202.8 million. Rising costs in some U.S. Navy shipbuilding contracts weighed on results. Austal USA has been negotiating cost reimbursement issues with the U.S. Navy over those contracts.
Hanwha Group's calculations have become more complicated as well. An IB industry source said, "If due diligence confirms the possibility of additional losses in existing contracts, it may be difficult to keep the original maximum price tag of $1.2 billion." The source added, "Who bears the additional costs, and how much, will determine the final acquisition price and deal terms."
Even so, Austal USA's strategic value continues to support its valuation. The company offers both a production base for building U.S. Navy ships directly and access to the nuclear submarine supply chain. In the end, Hanwha Group must use the four-week due diligence period to weigh the risk of further losses in the U.S. business against the strategic value of the Navy supply chain, then recalculate its final price.

[email protected] Kim Hyun-jung Reporter