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HHI’s DSME acquisition to be scrutinized by the EU

Dec 19,2019
The European Union is investigating Hyundai Heavy Industries’ proposed acquisition of Daewoo Shipbuilding & Marine Engineering (DSME), a deal that would create the world’s largest shipbuilder.

In a statement, the European Commission announced Tuesday that it will reach a decision by May 7, 2020, saying that the transaction “may reduce competition in various cargo shipbuilding markets.”

While merger control is often routine, the EU has signaled that the approval for the Hyundai Heavy Industries (HHI) Holdings takeover of DSME could be more involved.

“Maritime transport represents a substantial portion of the EU’s internal and external freight trade, with European shipping companies regularly purchasing vessels from DSME and HHI Holdings, two of the leading cargo shipbuilders in the world,” European Commission Executive Vice President Margrethe Vestager said, according to the statement.

“This is why we will carefully assess whether the proposed transaction would negatively affect competition in the construction of cargo ships, to the detriment of European consumers.”

The commission expressed concern that the merged entity could remove DSME as an important competitive force in the large container ship, oil tanker, liquefied natural gas carrier and liquefied petroleum gas carrier markets. It is also worried that the deal could negatively affect consumers and other shipbuilders and disrupt competition.

Europe generates 30 percent of global demand for cargo ships, and its companies are major customers of both Hyundai Heavy Industries and DSME. The commission added that the opening of the in-depth review does not prejudge the outcome of the investigation.

The deal could still be approved even though the European Commission expressed concerns. It was negative on the STX Offshore & Shipbuilding’s proposed acquisition of Aker Yards in 2007 but approved it, saying the proposed deal would not seriously threaten the market competition.

Hyundai Heavy Industries submitted the proposal for the acquisition to the EU antitrust authorities in mid-November. To be finalized, the deal needs to be approved by antitrust regulators in Korea and five other countries.

The deal won its first approval from the antitrust authority of Kazakhstan last month and is under review by Korea’s Fair Trade Commission and antitrust authorities of China, Japan, the EU and Singapore. If any of the authorities veto the deal, it could fall apart and stop there.

In late May, Hyundai Heavy Industries shareholders approved the splitting of the company, which was the first step toward acquiring DSME, despite violent opposition from the union.

They voted in favor of splitting the shipbuilder into two entities: Korea Shipbuilding & Offshore Engineering, an intermediate company responsible for investment and financial support for its affiliates as well as research and development, and Hyundai Heavy Industries, the operating company.

Following the split and the merger, four companies will remain: Hyundai Heavy Industries, DSME, Hyundai Mipo Dockyard and Hyundai Samho Heavy Industries.

The new operating company, which will be maintaining the name, will be focused on businesses such as shipbuilding, offshore plants and engine development.

Unionized workers of Hyundai Heavy Industries have been fiercely opposing the acquisition, saying the decision to split the company and the combining of DSME and Hyundai Heavy Industries could lead to layoffs.

They have claimed that the shipbuilder will inherit more than 7 trillion won ($6 billion) in debt from the acquisition.

BY KO JUN-TAE [ko.juntae@joongang.co.kr]