Austal founder warns FIRB approval for Hanwha increased stake could threaten defence contracts

Austal founding chairman John Rothwell has voiced concern that Federal Government approval for South Korea’s Hanwha to increase its stake in the Australian shipbuilder could endanger billions of dollars of defence contracts with offshore partners. Mr Rothwell said a green light for Hanwha to move to 19.9 per cent of Austal would “send the wrong signal” to Mitsubishi Heavy Industries and Dutch company Damen, who have been selected to build naval frigates and heavy landing craft respectively for the Australian Defence Force in partnership with Austal at Henderson in WA. The 81-year-old also reiterated his opposition to the Andrew and Nicola Forrest-backed Austal being taken over by Hanwha, repeating his preference that the shipbuilder he founded 38 years ago remain in Australian hands or if it was taken over, to be bought out by US interests. Speaking to The West Australian after stepping down from Austal’s board, Mr Rothwell said Mitsubishi and Damen “may well withdraw their designs” if they thought the WA shipbuilder would end up in Hanwha’s hands. Defence companies are notoriously sensitive about protecting confidential proprietary information, particularly from the eyes of rivals. Mr Rothwell said those sensitivities needed to be carefully considered by the Government, which is expected to decide this month on whether to allow Hanwha to double its stake in Austal to the takeover threshold, based on advice from the Foreign Investment and Review Board. “If we’re building the frigates and the heavy landing ships, I’d be very surprised if (Mitsubishi and Damen) would like Hanwha to be in there, and I’m not even sure whether they would proceed on that basis,” he said. “I think the Government would need to very carefully consider that.” Mr Rothwell, who started Austal in 1987 making aluminium crayboats and passenger catamarans, said he preferred Austal remain Australian-owned as the lynchpin of a sovereign shipbuilding industry. “I’m a very proud Australian and in my retirement I would like to it remain Australian owned,” he said. The entrepreneur said he had no objections to US ownership, citing Austal’s long-standing links to the country, which accounts for the lion’s share of its revenue. “I’m simply not comfortable outside of those two countries. Nothing personal against Hanwha.” Hanwha unsuccessfully tried to interest Austal in a takeover bid last year, lobbing three indicative offers, the last at $2.825 a share. However, the target’s refusal to engage has ultimately benefited shareholders, with Austal’s share price more than tripling over the past 12 months off the back of a growing order book in the US and Australia amid a boom in global defence spending. Mr Rothwell, who retains a 4.4 per cent stake, has been a major beneficiary of the stock’s surge, his holding now valued at $143m. Having stepped down as chair in favour of former US Navy Secretary Richard Spencer in July last year, Mr Rothwell said “the time is right” to also step down from the board. “The transition has been as seamless as I could have hoped, the company has just announced a great set of financial results, and Austal is in fantastic shape for its next phase of growth, particularly with the recent signing of the strategic shipbuilding agreement (with the Government),” he said. “So, I can’t think of a better time to finish my tenure on the board and make my own transition to watching Austal’s continued evolution and growth from outside the boardroom.” The Forrests’ investment company Tattarang, Austal’s biggest shareholder with 19.3 per cent, said Mr Rothwell had “built a fantastic business with visionary leadership”. “The continued strength of the Austal business is a testament to his approach,” Tattarang said. “Tattarang is a proud shareholder of Austal and privileged to be part of the company’s next phase of growth.” Austal last week announced better-than-expected annual earnings before interest and tax for the year to June 30 of $113.4 million, boosted by its mainstay building programs in the US for the US Navy and the US Coast Guard. Net profit rose to $89.7m from $14.9m, with revenue increasing 24 per cent to $1.82 billion, including $1.4b from Austal’s Mobile, Alabama shipyard. During Mr Rothwell’s time at the helm, Austal has built more than 350 vessels for 122 commercial and defence operators in 59 countries. “When I started Austal 38 years we did have ambitious plans for the company, but the amount of growth we have achieved has outpaced that level of ambition exponentially,” Mr Rothwell said. “Given the time to reflect, I now look back at those achievements with an enormous amount of pride, but also quiet satisfaction about how we have been able to innovate and grow as opportunities emerged.” Mr Spencer paid tribute to Mr Rothwell’s long and “legendary” contribution. “John has left an indelible mark on Austal and, frankly, it is difficult to overstate what he has done for shipbuilding in Australia, particularly Western Australia,” he said. Mr Rothwell and Austal have agreed that he will remain available to the company and board on a consultancy basis.