After a strong run higher, S&P/ASX 300 Index (ASX: XKO) stock Austal Ltd (ASX: ASB) is sinking today.
Shares in the Aussie shipbuilder closed yesterday trading for $3.00. During the Thursday lunch hour, they are changing hands for $2.87 apiece, down 4.3%.
For some context, the ASX 300 is up 0.74% at this same time.
As you can see on the chart above, Austal shares have been on fire of late.
In fact, at yesterday's close, the ASX 300 stock was up more than 40% since the closing bell on 11 September.
Investor enthusiasm has been roused by two new contract announcements over the past weeks.
On 16 September, Austal reported that it had been awarded a US$450 million (AU$670 million) contract by General Dynamics Electric Boat.
The company said the new funds would enable Austal USA to expand production capacity at its US shipyard. This will support of the US Navy Submarine Industrial Base (SIB) with the goal of delivering one Columbia-class and two Virginia-class submarines a year.
On 23 September the ASX 300 stock announced been awarded a US$152 million (AU$220 million) contract by the US Navy to invest in infrastructure to support the same submarine delivery goal.
So, why is the Austal share price deep diving today?
Image source: Getty Images
What's pressuring the ASX 300 stock today?
On 2 April, Austal revealed that it had received, and rejected, a takeover offer from South Korean conglomerate, Hanwha.
Under the initial offer, Austal shareholders would have received $2.825 cash per share. That was more than 28% higher than the share price at the time. But since then, ASX 300 stock hit a closing high of $3.04 a share on 23 September.
The deal faced some unusually high regulatory hurdles from the get-go.
As Motley Fool analyst James Mickleboro pointed out back in April:
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 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.
You can also add the Commonwealth Department of Defence to that list.
Today the ASX 300 stock is coming under pressure after news broke that Hanwha is backing out of its acquisition discussions. And that looks to be related to some secrecy surrounding Austal's operations.
Sourcing a letter from Hanwha to Austal, The Australian Financial Review reported today that Hanwha CEO Hyek Woong Kwon said Austal had agreed to provide access to its business only to cancel that access "without prior notice or explanation two days before the visits were scheduled".
According to Kwon:
More recently, the Austal board has indicated openness to granting us commercial due diligence, on the condition that Hanwha pays a termination fee if either the US or Australian regulatory authorities reject Hanwha's acquisition of Austal.
Discussions have stalled due to Austal's insistence on Hanwha paying the US$5 million fee at any time in the transaction process if Austal forms the opinion that regulatory approval will not be obtained. This is unprecedented in the context of a public markets transaction and is a wholly unreasonable condition on due diligence access.
An Austal spokesman said (quoted by the AFR):
When Austal informed its shareholders in April that it had received an indicative, conditional, non-binding offer from Hanwha, the company was very clear that the Austal board and advisers were not satisfied that mandatory approvals for the transaction to proceed could be secured by Hanwha.
Despite today's slide, shares in the ASX 300 stock remain up more than 60% over 12 months.
