The European Union (EU) remains hesitant in approving Korean mergers
Hyundai Heavy Industries’ and Daewood Shipbuilding’s plans to marry since March 2019 received almost everyone’s support, except from the European Union, for fear of monopoly.
Close to a year’s delay
With two weeks left to the deadline, the EU claimed it has yet to conclude its investigation. As at June 2021, only China, Kazakhstan and Singapore supported the merger, which amounts to US$1.8 billion. Under the agreement, Hyundai Heavy Industries Holdings Co (HHIH) will acquire Daewoo Shipbuilding and Marine Engineering Co (DSME). The European Union’s last paused the review in July 2020. To date it remains in limbo.
A spokesperson from EU Competition Commission suggested parties did not submit the necessary information to facilitate a timely inquiry, which resulted in the pause. However, an official from HHIH’s subholding, Korea Shipbuilding & Offshore Engineering Co (KSOE) claimed to be in discussion with the EU antitrust.
Where does it leave Korea?
The EU’s decision will be the turning point for the Korea’s newbuilding landscape, given a bulk of both Hyundai and Daewoo’s clientele are European shipping firms. The Korea Development Bank (KDB) offered DSME a lifeline after Hyundai’s inking the deal with the state-run bank to acquire 55.72 per cent stake in DSME. The bank is also DSME’s biggest creditor, with the latter battling cash flow issues since 1999.
Industry observers expect the world’s largest shipbuilder to emerge after the deal – holding a 21 per cent market share. Hyundai Heavy Industry Group will split Hyundai Heavy Industries into two entities – KSOE, a holding company that governs shipbuilding units and handles the acquisition – and a reorganised Hyundai Heavy Industries that focuses on ship construction.
Mergers do not translate to all workers’ remaining employed. With that, DSME’s workers have expressed dissent towards the impending act. They cited monopolised shipbuilding industry will cut jobs and adversely impact the country’s supply chain. Indeed, there is a risk of price-fixing if a monopoly happens. What the shipping clientele at large should be looking out for is trade-offs for price-wars.