HHI Signs Preliminary Deal to Acquire DSME

Hyundai Heavy Industries (HHI) has signed a "conditional" agreement to take over Daewoo Shipbuilding and Marine Engineering (DSME) from the South Korean government, confirming earlier reports that an acquisition is in progress. The merger would join two heavyweights to create a shipbuilding giant with a global market share of about 20 percent.

In a stock exchange filing, HHI said that it has entered into an agreement with the South Korean policy bank KDB, DSME's majority shareholder, to merge the two leading shipbuilders' operations. HHI will partially fund its investment by selling a stake in a refining subsidiary, Hyundai Oilbank Co. Ltd.

"The agreement between Hyundai Heavy Industries Group and Korea Development Bank is a solution for the recovery of the domestic shipbuilding industry," said HHIG in a statement. "We will pursue maximum synergy effects from the consolidation while still maintaining competition."

At a press conference, KDB Chairman Lee Dong-gull said that the agreement was not yet finalized, and that the other "Big Three" South Korean shipbuilder - Samsung Heavy Industries - would also have a chance to bid for DSME. However, foreign bids will not be encouraged: KDB's policy objective is to end up with two large Korean shipbuilders, not one foreign-owned shipbuilder competing with two domestically-owned yards.  “In order to fundamentally enhance the competitiveness of the industry, it is crucial to eliminate the inefficiency caused by overlapping investment under the current 'Big Three' structure,” he said. 

If the deal is finalized, it will require approval from antitrust regulators in multiple nations, a process that will likely take months. It will also have to overcome opposition from unionized workers at both companies, who fear that a merger may lead to additional layoffs.