Report: EU has Reached Consensus to Object to Korean Shipyard Merger
![EU to block merger of Hyundai and DSME in South Korea](/media/images/article/Photos/Shipbuilding/Cropped/DSME-16x9.f0adbf.jpg)
After two years of review and repeated delays as the coronavirus slowed the process, media reports are indicated that the European Union’s antitrust regulators will soon announce their official objection to the proposed merger of South Korea’s Hyundai Heavy Industries and Daewoo Shipbuilding and Marine Engineering (DSME). It would be the second time in a year that the EU rejected a large shipbuilding combination after objecting to the proposed combination between Fincantieri and Chantiers de l’Atlantique prompting the Italian and French yards to withdraw their proposal in January 2021.
Korea Shipbuilding & Offshore Engineering (KSOE) filed for the review of the proposed merger in November 2019. The company said that it would become the parent of the two shipyard companies and that they would continue under independent management while KSOE would focus on future technologies and strategies for the companies. KSOE asked for approval for the plan from the EU, China, Singapore, Japan, and Kazakhstan. So far, only China, Singapore, and Kazakhstan approved the combination with the South Korean authorities reportedly waiting for the EU. Japan’s intentions also remain unknown.
The Europeans launched an in-depth review after raising initial concerns about the anti-competitive implications for European shipowners. It was highlighted that the combined companies would have a quarter of the world’s shipbuilding business and dominate the South Korean shipbuilding industry. China and South Korea represent the vast majority of the world’s shipbuilding orders with Japan a distant third.
DSME was looking to the merger to help the shipyard recover from a string of financial losses. Despite exceeding its order targets for 2021, the company reported this week a widening financial loss. Citing a decline in sales for the quarter, increased vacation days during the summer, and rising steel prices, DSME recorded a loss of $46 million for the third quarter of 2021.
The Korea Times reported in October that the EU was focusing on lack of competition primarily for LNG carriers and on Tuesday the newspaper reported it has heard from unnamed sources that the EU “has reached a consensus to block,” the proposed acquisition. While the EU cannot officially prevent the merger, its opposition could make it difficult for the shipyards to win contracts from European companies. KSOE responded saying it is still awaiting the decision of the EU, which it expects before year’s end, but the expectation is that the company will not proceed if the EU objects citing monopoly concerns.
The EU according to The Korea Times is citing the fact that the two shipyards currently build as much as two-thirds of the LNG ships and the potential for the Koreans to raise prices in this segment. The Korea Times reports the KSOE offered a price freeze on LNG carriers, licensing efforts to make its technology available to European shipyards, and other support for European shipbuilders to compete for LNG construction.
Previously, the newspaper reported that KSOE had also proposed possibly selling one of Hyundai’s current shipyards to win EU approval for the merger. “Its offer reportedly failed to impress the EU,” writes The Korea Times.
In January 2021, ministers from France and Italy announced that they had decided to withdraw their application for the EU anti-trust review of the proposed merger of their countries’ shipbuilders. The EU had also expressed concerns about the combination launching an in-depth review, which caused the two companies to extend five times their deadline for completing the merger.
Hyundai Heavy Industries has also repeatedly extended the deadline for completing its merger in agreement with the major shareholders of DSME.