EU vetoes S. Korean shipbuilding merger between Hyundai and Daewoo

SEOUL-- The European Union antitrust regulator on Thursday vetoed Hyundai Heavy Industries Group's proposed acquisition of its smaller rival Daewoo Shipbuilding & Marine Engineering Co., citing monopoly issues.

The European Commission announced its decision to block the merger of the South Korean shipbuilders, arguing the tie-up could create a monopoly in the liquefied natural gas (LNG) carrier market amid rising energy prices.

"The merger would have created a dominant position by the new merged company and reduced competition in the worldwide market for the construction of large LNG carriers," the Commission said in a statement.

Hyundai Heavy did not formally offer remedies to address the Commission's concerns that the merger would have led to fewer suppliers and higher prices for LNG ships, the statement said.

If merged, two shipbuilders' combined market share in the LNG ship market would rise to at least 60 percent, the EU regulator said.

Hyundai Heavy Industries Holdings Co. (HHIH) called the commission's conclusion unreasonable and disappointing.

"The Commission's use of the market share as evaluation criteria has no probative value as the market share itself is not a proper indicator of market power in the shipbuilding industry," HHIH said in a statement.

LNG ships are the only sector that the EU took issue with in terms of dominant position, HHIH said.

Hyundai Heavy had expected unconditional European Commission clearance for the deal as was the case in Singapore, China and Kazakhstan.

The Singaporean regulator said that the shipbuilding market is heavily reliant on tenders and is essentially a bidding market. In bidding markets, having high market share may not confer market power as market share can be easily lost in the next bidding round, the statement said.

The existence of at least one credible alternative to the merged entity may be enough to constrain their ability to exert market power following the proposed merger. There are close competitors, such as Samsung Heavy Industries Co., Hudong Zhonghua Shipbuilding Co., and Mitsubishi Heavy Industries, Ltd., it said.

After reviewing the EU's final decision, HHIH said it will pursue possible measures, including an appeal to the General Court of the European Union.

Daewoo Shipbuilding was not immediately available for comment.

Hyundai Heavy announced the deal in 2019, and the EU regulator postponed the review of the acquisition three times in the past two years due to the extended COVID-19 pandemic.

In March 2019, Hyundai Heavy's main creditor Korea Development Bank agreed to provide the 56 percent stake it holds in Daewoo Shipbuilding to Hyundai Heavy in exchange for a stake worth 1.25 trillion won (US$1 billion) in Korea Shipbuilding & Offshore Engineering Co. (KSOE).

HHIH, the holding company of Hyundai Heavy Industries Group, holds a 36 percent stake in KSOE. KSOE is the group's subholding company and has three affiliates -- Hyundai Heavy Industries Co., Hyundai Mipo Dockyard Co. and Hyundai Samho Heavy Industries Co. -- under its wing.

Under the initial agreement, Hyundai Heavy was planning to raise 1.25 trillion won through the sale of Daewoo Shipbuilding shares to pay back Daewoo's debts after acquisition.

An EU veto is the first since the EU regulator blocked the merger between Germany's steelmaker Thyssenkrupp AG and India's Tata Steel Ltd. in 2019 due to the same anti-competition worries.

South Korea has the world's three biggest shipbuilders by orders -- Hyundai Heavy, Samsung Heavy Industries Co. and Daewoo Shipbuilding.

Source: Yonhap News Agency

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