Federal Government’s huge naval shipbuilding deal with Austal comes with ‘poison pill’ takeover defence

The Federal Government will be able to thwart any takeover bid for Austal as part of a potential $20 billion defence deal that appoints the Henderson-based company as the country’s naval shipbuilder of choice. The long-awaited strategic shipbuilding agreement stands to transform the Henderson complex, south of Perth, into Australia’s biggest and busiest shipyard to support contracts to build landing craft and warships for the Australian Defence Force. It was announced simultaneously with news that Australia will spend $10b to buy three frigates from Japan, and then build a further eight at Henderson, most likely through Austal, at a cost yet to be negotiated with Japan’s Mitsubishi Heavy Industries. ASX-listed Austal’s shares leapt nearly 7 per cent to a record $6.86, valuing the group at $2.8 billion. The Government’s deal with Austal, which is 19.6 per cent owned by Andrew and Nicola Forrest, so far only covers landing craft but will likely be extended later to cover the frigates. The contracts have been previously valued at $20b over 20 years. The Austal deal comes with a so-called ‘poison pill’ to ensure the Government can protect and maintain control of a sovereign shipbuilding industry in Australia. The extraordinary terms of the agreement would enable the Government to take control of Austal’s Henderson shipyard in the event of a takeover of Austal, which is being stalked by South Korean group Hanwha. Under the deal, Austal will build 26 landing craft for the Australian Army and then likely the eight frigates for the Royal Australian Navy through a new business, Austal Defence Australia, that will be owned in partnership with the Government. Austal said on Tuesday it would control day-to-day management of ADA, but the Government would get a call option over Austal’s shares in the business “that can be exercised in limited circumstances”, including a takeover of Austal or a third party acquiring more than 20 per cent of the company. “If the call option is exercised, Austal will transfer all of its ordinary shares in Austal Defence Australia to the Commonwealth for fair market value,” it said. “As part of any such share transfer, Austal will transfer its Henderson shipyard (plus other related physical assets), and its production-focused workforce, to Austal Defence Australia so that it is able to continue to operate at Henderson as a standalone entity.” Hanwha last year launched a failed bid to buy Austal, mainly to take control of its strategically important shipbuilding contacts in the US with the US Navy. Five months ago, it renewed its interest by buying 9.9 per cent of the company and seeking Foreign Investment Review Board approval to move up to 19.9 per cent. FIRB’s decision has yet to be announced. Under the Austal agreement, ADA will be the prime contractor for the build and delivery for 18 medium landing craft and eight heavy landing craft for the Australian Army. Contracts for the construction of the medium landing craft at a cost of up to $1.3b over the next eight years are expected to be finalised by the end of September. Contracts for the bigger craft, which were not costed, are due by the end of 2025. Austal chief executive Paddy Gregg said the strategic shipbuilding agreement was “a defining moment for Austal”, saying it “reflects both Austal’s excellent defence shipbuilding record and the capabilities that Austal possesses to help the Australian Government to achieve its defence objectives”. “The Commonwealth seeks to ensure Australia’s defence procurement possesses sovereignty and greater certainty and resilience across the naval ship supply chain in an increasingly complex strategic environment and in alignment with the Commonwealth’s continuous naval shipbuilding policies,” Mr Gregg said. At the same time, Austal has also upgraded its expected net profit for the 2025 financial year from at least $80 million to at least $100m.