Shipbuilding Consolidation: Bollinger Agrees to Buy VT Halter
As a further sign of the challenges in the U.S. shipbuilding industry, Bollinger Shipyards announced that it has entered into an agreement to acquire VT Halter Marine and ST Engineering Halter Marine Offshore. The Singapore-headquartered parent company said they had decided to divest of the operations after years of financial losses while Bollinger reported that the consolidation would add new construction and repair capacity and capabilities to better serve its key defense and commercial customers.
“We have experienced challenges and losses in the past years operating the two U.S. shipbuilding and ship/rig repair businesses,” said Vincent Chong, group president & CEO of ST Engineering based in Singapore. “After a thorough review of strategic alternatives, we made this difficult decision to exit the U.S. marine business. We believe that this proposed transaction represents a favorable outcome for ST Engineering shareholders, Halter Marine, and STEHMO as well as their stakeholders.”
ST Engineering reported that the two U.S. business units in the past five years have incurred a combined net loss before tax of $256 million, with an annual net loss before tax that ranged from about $40 to $60 million. The U.S. businesses, which had been contracted by the U.S. Coast Guard to build the next generation ice breakers are reported to have an orderbook valued at $1.9 billion at the end of September. However, reports suggest that the icebreaker program which is well behind schedule could end up creating significant losses for the builder.
Bollinger, which bills itself as the largest privately-owned and operated shipbuilder in the United States, is paying $15 million in cash for the two shipyards in Pascagoula, which will be renamed Bollinger Mississippi Shipbuilding and Bollinger Mississippi Repair, and two dormant yards north of Pascagoula. The terms also include a potential earnout for ST Engineering of up to $10.25 million, subject to the award of certain future shipbuilding contracts to Halter Marine and the contracts meeting operating profit margins.
All ongoing programs assigned to the two companies are to be conveyed with the transaction. Notably, the Polar Security Cutter (PSC) program for the U.S. Coast Guard and the Auxiliary Personnel Lighter-Small (APL(S)) program for the U.S. Navy. Halter is said to have made an aggressive bid for the polar security cutter project with the first ship at a fixed price of $745.9 million, according to a report in Forbes. For the contract to be profitable, the vessel needs to be built on time and on budget despite the ongoing material and labor shortages and rising costs due to inflation.
The shipyard consists of 225,000 square feet of covered production area in the main fabrication assembly buildings. The facility is capable of producing Panamax-sized vessels up to 50,000 dwt and features an expanded 740-foot tilt-beam launch system.
“The addition of VT Halter Marine and STEHMO in Pascagoula, Mississippi is strategic as it further strengthens our position in the industry and U.S. defense industrial base by allowing Bollinger to expand our footprint, capabilities, and suite of innovative solutions that we can provide to our customers,” said Ben Bordelon, CEO and President of Bollinger Shipyards.
He said that the acquisition creates expanded opportunities for Bollinger to better serve and deepen its relationships with its key defense and commercial customers with an increased capacity and footprint, improved efficiencies, enhanced economies of scale, and access to a large skilled workforce. Given the proximity to Bollinger’s existing facilities, the company said the acquired yards will be able to support further efficiencies and resolution of any potential capacity constraints.
The transaction is expected to close in the fourth quarter of 2022. ST Engineering reported that it expects a non-cash charge totaling a loss of nearly $10 million from the sale of the U.S. business units.