Korean FTC Expected to Conditionally Endorse HHI-DSME Marriage

The Fair Trade Commission (FTC) is expected to conditionally approve the merger between Hyundai Heavy Industries (HHI) and Daewoo Shipbuilding & Marine Engineering (DSME).

The commission is likely to reach a conclusion to the proposed business combination, which has been reviewed for the past three years, next month at the earliest or early next year.

The commission will present a report on the matter to the plenary session as early as November. It is expected to hold a plenary session next month or early next year to reach a final conclusion.

HHI signed a contract with Korea Development Bank (KDB) to acquire DSME in March 2019. According to the contract, DSME becomes a subsidiary of Korea Shipbuilding & Offshore Engineering (KSOE), an intermediary holding company of HHI Group that controls HHI, the nation’s largest shipbuilder.

The completion of the M&A deal will lead to the creation of a “mega shipbuilding group” with annual sales of about 22 trillion won (about 15 trillion won in sales for KSOE and about 7 trillion won in sales for DSME on a consolidated basis in 2020). In the LNG carrier construction segment, the two shipuilders’ combined global market share will stand at about 70 percent. Regarding the business combination, FTC officials already completed much of their review months ago. However, they have postponed their decision as overseas fair competition watchdogs, especially that of the EU, have delayed their reviews. Of the six countries that were requested to review the business combination, Korea, the EU, and Japan have yet to make a decision. Now, the EU is known to make a decision before long.

The Korean FTC is likely to conditionally approve the business combination. It believes that the HHI-DSME merger would not restrict competition in the segments of containerships, tankers, and LPG carriers. However, in the LNG carrier segment, the merged company would enjoy a monopoly as the two companies’ combined global market share reaches about 70 percent. Hence, the commission believes that a corrective order should be given to the merged company.

The EU is also reviewing the business combination from a perspective similar to that of the Korean FTC, but it is using much stricter standards than the Korean FTC. This is because the merger could affect the interests of the large global shipping companies concentrated in Europe. Industry insiders expect Japan to make a decision based on the EU’s conclusion.

HHI reportedly offered to the EU a freeze on LNG carrier prices for a certain period of time and technology transfers to other shipbuilders, but the EU reportedly demands that the merged company sell part of its LNG carrier business. The EU intends to artificially reduce the global LNG carrier market share of the merged company. Industry insiders are wondering whether HHI will be able to come up with an alternative offer to EU’s demand.
Source: Business Korea