Austal Ltd (ASX: ASB) shares are lifting off on Tuesday morning.
At the time of writing, the ASX 300 stock is up 9% to $2.40.
Why is this ASX 300 stock jumping?
Investors have been buying the shipbuilder's shares this morning in response to news that the company has received and rejected a takeover offer from South Korean chaebol, Hanwha.
According to the release, the ASX 300 stock received an unsolicited, conditional, and non-binding indicative proposal from Hanwha to acquire it by way of a scheme of arrangement. Under the terms of the indicative proposal, Austal shareholders would receive $2.825 cash per Austal share.
This represents a 28.4% premium to where the Austal share price ended last week.
Management notes that Hanwha's indicative proposal is subject to numerous conditions. These include due diligence, various regulatory approvals, final approval of the Hanwha Board, the unanimous recommendation of the Austal Board, and Austal shareholder approval.
While most acquisitions are subject to regulatory approvals, as a shipbuilder to the Australian and US governments, any deal for Austal faces significant scrutiny from regulators. For example, for a deal to get over the line, it would require approval from Australia's Foreign Investment Review Board (FIRB), the Committee on Foreign Investment in the United States (CFIUS), and the US Defense Counterintelligence and Security Agency.
In addition, the ASX 300 highlights that it recently executed a memorandum of understanding (MoU) with the Department of Defence to negotiate a Strategic Shipbuilding Agreement (SSA). If all goes to plan, Austal will be appointed as the Commonwealth's strategic partner for vessels to be constructed in Western Australia.
However, the Commonwealth Department of Defence noted that "a sovereign and enduring naval shipbuilding and sustainment industry at Henderson is central to the Government's commitment to ensuring continuous naval shipbuilding in Australia and delivering the capabilities needed to keep Australians safe." A takeover by a South Korean chaebol could potentially scupper this agreement.
Offer rejected
In light of the above, the ASX 300 stock has rejected the offer. Though, it will continue to engage with Hanwha. It explains:
The Austal Board, together with its advisers, has considered the Indicative Proposal in detail and engaged with Hanwha in relation to whether the transaction described in the Indicative Proposal would obtain the relevant regulatory approvals in Australia and the USA to enable it to proceed. At present Austal is not satisfied that these mandatory approvals would be secured, however the company is open to further engagement if Hanwha is able to provide certainty on whether a transaction would be approved.
Management also advised that Austal shareholders do not need to take any action in response to the proposal.
