Hanwha firms up Korea defence ambitions

The Korean conglomerate is set to pay $256 million for the remaining 50% stake in Hanwha Thales, a military equipment joint venture established with France's Thales.
Hanwha Thales supplies communication and surveillance systems to the South Korean Air Force
Hanwha Thales supplies communication and surveillance systems to the South Korean Air Force

Hanwha Group is set to further solidify its leading position as South Korea’s defence powerhouse by acquiring the remaining 50% stake in its military equipment joint venture with France’s Thales Group.

Paris-headquartered Thales said in a statement Wednesday that it will exercise a put option to sell its 50% interest in Hanwha Thales to Hanwha Group for W288 billion ($256 million), marking the end of its 16 year-presence in Korea.

Thales entered the Korean market in 2000 through a 50:50 joint venture with Samsung, which was then known as Samsung Thales. Samsung’s stake in the JV was subsequently acquired by Hanwha as part of a broader sale of its defence business last year.

Hanwha offered Thales the put option because the French group was initially against the Samsung transaction and did not want its local partner replaced, according to a person familiar with the company.

Thales’s withdrawal from the JV was widely expected because its focus is on aircraft electrical and communication solutions, so there is little synergy with Hanwha Thales, which mainly focuses on combat and surveillance systems.

Since last year, Hanwha has shown its intention to develop the military and defence sector as the group’s core business.

Hanwha is a highly diversified conglomerate that operates in chemicals, energy, construction, retail, finance, and insurance. It expanded into the defence industry last year via the purchase of Samsung Techwin and Samsung Thales.

The group further strengthened its position in April after Hanwha Techwin (previously Samsung Techwin) announced its intention to buy Doosan DST, a leading defence equipment manufacturer, for $600 million.

These acquisitions have turned Hanwha into one of Korea’s biggest defence companies alongside state-owned Korea Aerospace Industries (KAI) and LIG Nex1.

Based on the transaction value, Hanwha Thales is valued at W576 billion and approximately 20 times last year's operating profit. Such a valuation represents a significant discount to publicly-listed KAI and LIG Nex1, which trade at 35 times and 26 times earnings on a trailing 12-month basis.

Hanwha has four months to decide which subsidiary will take the Hanwha Thales stake. Currently the group has seven listed subsidiaries but Hanwha Techwin and explosives maker Hanwha Corporation are the likely candidates.

The JV sale is subject to government approval, according to Thales.

¬ Haymarket Media Limited. All rights reserved.
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