Hyundai Sues EU Over Rejection of Shipbuilding Merger
South Korea’s Hyundai Heavy Industries announced that it has filed a legal challenge to the European Commission’s decision earlier this year to block the planned merger of its shipbuilding operations with Daewoo Shipbuilding & Marine Engineering Co. Confirmation of the lawsuit came however as Hyundai said it looks to move forward with a new business plan for the group and that it did not intend to re-bid on DSME even if the shipyards are again put up for sale.
The European Commission early in January confirmed its opposition to the proposed acquisition of Daewoo Shipbuilding & Marine Engineering by Hyundai Heavy Industries announcing that it had “prohibited” the South Korean shipbuilders from merging under the EU Merger Regulation. While they could not officially stop the merger, the EU regulators could impose tariffs against the company effectively stopping them from doing business with EU companies. They cited concerns over market dominance in the construction of large LNG carriers in particular. It marketed only the tenth time the EC said that it had rejected a proposed merger in over 3,000 transactions it had reviewed.
The legal filing took place on March 23 at the European Union's General Court. Legal experts are questioning the reasoning for the case but noted that it could have a significant impact on future merger reviews. The EU based its decision on concerns over a monopoly of what it viewed as a critical market to European industry and the fact that the companies did not offer a solution to addressing the potential for reduced competition in critical markets.
“We believe it was not reasonable for the EU to judge the merged entity’s expected market dominance based solely on the two companies’ market shares. So, we’re seeking the court’s judgment on this matter,” said an official at the shipbuilder’s holding company.
Korea’s state-run Korea Development Bank, which is the main creditor of DSME, said that it was exploring new alternatives to pursue the strategy to divest its holdings in the shipbuilder. It was reported that the bank would look for other domestic buyers to complete the privatization of the company. Last year, the bank oversaw the sale of mid-sized shipbuilders including the former STX to new investment groups.
Hyundai had said it would buy the bank’s 55.7 percent stake in DSME in a transaction valued at $1.6 billion and run the shipyard as an independent business alongside Hyundai’s yards and managed by Korea Shipbuilding & Offshore Engineering. The urgency for the transaction was again highlighted when DMSE reported despite the growth in shipbuilding orders a nearly $1.5 billion loss in 2021 due to high material and operating costs. DSME exceeded its order targets for 2021 and reports that it had a strong start to 2022 booking nearly half its annual target in the first three months of the year. DSME named a new CEO last week.
At the same time, Hyundai last week made official the appointment of a grandson of its founder as its new chief executive officer. Chung Ki-sun outlined a new business strategy for the company as well as a new corporate identity, HD Hyundai. Chung said the company will move beyond manufacturing focusing on investments. He looks to accelerate a strategy focusing on four elements, including future shipping, hydrogen fuel cells, digital technologies, and health care. South Korea’s incumbent president Moon Jae-in who completes his term in May last year spelled out a strategy for focusing South Korean shipbuilding on high-value ships and new technologies.