Daewoo Shipbuilding Acquisition May Extend Beyond the New Year

No Progress in EU Merger Review of Companies

The Daewoo Shipbuilding Union held a press conference on the 8th of last month in front of the West Gate of Daewoo Shipbuilding & Marine Engineering Okpo Shipyard in Geoje-si, Gyeongnam, announcing the start of a walking protest to block the company’s sale and protect the shipbuilding belt of the South Coast.

[Asia Economy Reporter Choi Dae-yeol] The European Union (EU)'s merger review, which will play a decisive role in Hyundai Heavy Industries Group's acquisition of Daewoo Shipbuilding & Marine Engineering, is being delayed indefinitely. Nearly two years have passed since the acquisition process began, and it seems unlikely that a conclusion will be reached within this year.

According to industry sources on the 8th, the Competition Division under the EU Commission has maintained its suspension of the in-depth investigation since July last year regarding this matter. For Hyundai Heavy Industries Group to acquire Daewoo Shipbuilding, approval must be obtained from competition authorities in six countries including South Korea, the EU, and China. Approvals have been received from Kazakhstan, Singapore, and China, but not yet from the EU, Japan, and South Korea.

The key issue is the EU's review. The company began preliminary consultations with the EU Commission in April 2019 and started the formal review in November of the same year, but since then, the review has been repeatedly suspended and resumed with little progress. It is known that if the EU review does not reach a conclusion within a set period (up to 125 business days), it is considered approved. Considering that the EU has reviewed this matter for about 80 days so far, a conclusion must be reached within two months after the review resumes.

The EU is delaying because the two companies have a high market share in the liquefied natural gas (LNG) carrier market. Hyundai Heavy Industries Group’s intermediate holding company in the shipbuilding sector, Korea Shipbuilding & Offshore Engineering, and Daewoo Shipbuilding’s LNG carrier market share exceeds 60%. Since there are many LNG shipowners in Europe, it is highly likely that the EU judges that, upon merger, Korean shipbuilders would gain price-setting power, harming shipowners within the region.

Hyundai Heavy Industries proposed alternatives such as freezing prices for a certain period and transferring technology, but it is reported that the EU even mentioned the sale of the LNG business division. As the EU review is delayed, the company postponed the transaction contract with the Korea Development Bank, originally scheduled for the end of last month, to the end of this year. If the suspension of the review continues, it may extend beyond this year.