austal plans to bid for submarine builder

Austal plans to bid for submarine builder
Author: Cathy Bolt
Date: 04/03/2004
Words: 498
Source: AFRBreaking
Publication: Financial Review
Section: Companies
Page: 16


West Australian ship builder Austal has emerged as a surprise contender against construction and contracting giant Leighton in the politically sensitive bidding process for Australian Submarine Corporation.

Austal's senior management said yesterday it would not comment on speculation it was interested in Adelaide-based ASC but The Australian Financial Review has confirmed it planned to bid when the federal government finalised the protracted sales process.

Austal has moved increasingly into military work in the past several years for defence forces in Australia, the United States and the Middle East. But the acquisition of ASC - which has been valued at $80 million to $200 million - would be a huge step for the company, financially and operationally.

Insiders rate Austal's chances at only about 20 per cent because it has indicated it will not participate in a bidding war with likely rivals including Leighton, which sees ASC as an entry into the $10 billion naval shipbuilding industry.

But if it was successful, it could double Austal's capitalisation of about $190 million and give it a sought-after consistent revenue flow to complement its existing lumpy contract earnings.

It is believed Austal has canvassed advisers, including Macquarie, about the deal and been assured there would be little problem in funding it, including through new equity.

ASC's future has been assured by a 20-year, $3.5 billion contract for through-life support of the six Collins class submarines. It is also expected to be a bidder to build three new air-warfare destroyers worth up to $6 billion, part of plans to upgrade Australia's defence capability over the next 15 years.

Austal was approached recently to determine its interest in ASC by investment consultant John Wylie of Carnegie Wylie, who is advising the government on the sale of ASC and the reshaping of naval shipbuilding in Australia.

Austal's chances may improve if ASC's sale is influenced by politics. It is fully Australian-owned and listed, while 51 per cent of Leighton is in the uncertain ownership of Germany's Hochtief AG.

Leighton may not have endeared itself to the government by recently striking a side deal with Swedish submarine designer Kockums that gives it access to disputed intellectual property (IP) in the Collins class submarine if its buys ASC. The IP has been the subject of a long legal battle with the government, which has delayed the sale of ASC.

Austal is also likely to look favourably on keeping any expansion of ASC for the new destroyers in Adelaide, given its public concerns about WA's industrial laws and the hot competition for metalworkers in WA.