Report: EU blocks HHI’s mega acquisition deal with DSME

The European Union (EU) has achieved a consensus to prevent South Korean shipbuilding company Hyundai Heavy Industries (HHI) to finalize the proposed acquisition of rival Daewoo Shipbuilding & Marine Engineering (DSME), Korea Times writes citing several sources.

In March 2019, HHI signed a formal contract to takeover compatriot shipbuilder DSME. The agreement was reached with South Korean state lender Korea Development Bank (KDB), the majority shareholder in DSME owning a 55.7 percent stake in the company.

Under the deal, KDB would sell its majority stake in DSME, which has an estimated value of KRW 2.16 trillion (USD 1.85 billion), to HHI. The bank would transfer its DSME common stock to HHI and buy KRW 1.5 trillion worth of HHI stocks. What is more, KDB would consider providing KRW 1 trillion as a financial boost to DSME.

HHI formally submitted the application to the European Commission to gain approval for the proposed acquisition deal in November 2019. However, since then, the mega-merger has faced hurdles and has been under an in-depth probe in the EU.

The EU regulatory body voiced concerns that the proposed transaction may remove DSME as an important competitive force in the markets of large containerships, oil tankers, liquefied natural gas (LNG) and liquefied petroleum gas (LPG) carriers and create a monopoly in these segments.

According to the official information on the EU Commission’s website, the provisional deadline for the completion of the probe was stopped in July last year, amid COVID-19 related delays in the provision of information. The deadline remains suspended ever since. Now, the hurdles reached a peak with the EU formally blocking the merger, according to the sources.

“Several rounds of tough discussions between HHI and EU antitrust regulators have taken place specifically regarding the possible impact of the deal on the big container ship and LNG (liquefied natural gas) carrier segments. But the EU remains concerned that the HHI-DSME deal won’t ensure fair market competition in these profitable shipbuilding sectors over the long term. Therefore, its members reached a consensus to block the proposed acquisition,” a source from Europe told The Korea Times.

So far, HHI has submitted several solutions to address these concerns, including separating some of its divisions to demonstrate its willingness to maintain its business size. However, that was not received well by the EU officials, the government source revealed to the local news website.

“HHI was said to have pledged to not inflate the price of large container and LNG ships for a certain period and to work closely with major European shippers in terms of stabilizing both the EU’s internal and external freight trade,” the source stated when asked about the details of the recent happenings.”

In addition to the EU approval, the acquisition still requires approval from South Korean and Japanese regulators. Regulators in Singapore and Kazakhstan approved the merger.

In late December 2020, the merger was also approved by China’s State Administration for Market Regulation (SAMR), explaining that the deal would not violate antitrust laws or endanger competition in the country.