Hyundai Heavy Industries and Daewoo Shipbuilding Merger Faces 'COVID-19 Obstacles'

EU Temporarily Suspends Merger Review of Two Companies
Market Competitors Judge Data and Information Acquisition Difficult Due to COVID-19

[Asia Economy Reporter Hwang Yoon-joo] The merger between Hyundai Heavy Industries Group and Daewoo Shipbuilding & Marine Engineering, aimed to be completed within this year, has been disrupted by the unexpected obstacle of the novel coronavirus disease (COVID-19). This is because the European Union (EU) has suspended the merger review process of the two companies due to the spread of COVID-19.

A representative from Korea Shipbuilding & Offshore Engineering (formerly Hyundai Heavy Industries) stated on the 3rd, "The EU Commission has temporarily postponed the merger review of Hyundai Heavy Industries Group and Daewoo Shipbuilding & Marine Engineering due to the COVID-19 outbreak," adding, "Hyundai Heavy Industries Group will continue constructive dialogue with the EU Commission even during this temporary suspension."

According to the EU Commission's website, as stakeholders shifted to remote work systems, data collection and information gathering related to the merger review became difficult, leading to the suspension of the review.

Hyundai Heavy Industries Group submitted the formal merger review application to the EU Competition Commission on November 12 last year. Accordingly, the EU completed the first phase preliminary review out of the total two-phase review process. The EU Commission had planned to announce the results of the second phase in-depth review by July this year.

The countries where Hyundai Heavy Industries Group must undergo merger reviews are the EU, China, Japan, Singapore, and Kazakhstan, totaling five countries. Companies that record sales above a certain threshold in each country are subject to merger reviews. According to regulations, if even one of the six countries (including Korea) rejects the merger approval, the merger will fail. So far, only Kazakhstan has approved the merger review.

Japan entered the second phase of review last month, and the Chinese government has been reviewing the merger since receiving Korea Shipbuilding's application at the end of July last year. At that time, it was expected that a response would be received within 120 days at the latest, but no conclusion has been reached yet. Singapore, which received the merger review application in September last year, is also still reviewing.

Hyundai Heavy Industries had planned to complete the merger review within this year, but the EU Commission's suspension of the review has delayed the schedule further. The EU is considered a key region that will determine the merger during overseas reviews. Since Europe has many strong players in shipbuilding and shipping, the EU strictly examines whether the merger of the two companies could hinder competition.

The industry expects that other competing countries will also reach conclusions based on the EU's review results. Additionally, Japan's filing with the World Trade Organization (WTO) in January, accusing the Korean government's shipbuilding industry restructuring process of violating subsidy agreements and challenging the merger of Hyundai Heavy Industries and Daewoo Shipbuilding, adds to the burden.

An industry official said, "Originally, the merger between Hyundai Heavy Industries and Daewoo Shipbuilding & Marine Engineering was expected to be completed by the third quarter of this year, but with the EU Commission prioritizing COVID-19 containment over the merger review, concerns about delays have arisen."

Meanwhile, Hyundai Heavy Industries Group signed the main acquisition contract for Daewoo Shipbuilding in March last year, and subsequently, following procedures, split the existing Hyundai Heavy Industries into Korea Shipbuilding & Offshore Engineering (the surviving company) and Hyundai Heavy Industries (the newly established company) through a physical division method.