The European Union and the European Commission have not approved the merger between Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering.
In the end, the merger between the two shipbuilders failed, but let’s take a closer look at how this decision was made, what the consequences are, and the future outlook by connecting reporters. Reporter Park Hong-goo!
First, let’s find out why the merger was not approved.
[기자]
The European Commission announced last night in Korea time that it would not allow a business combination between Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering.
The EU said that the merger of the two companies would create a dominant position in the LNG carrier market, hampering competition as the reason for not allowing the merger.
It is said that there is a risk of monopoly.
Looking at the market share of LNG carriers for the past five years, the combined basis of the shipbuilding volume is 60%.
The EU is the world’s third-largest importer of LNG, and we believe that a rise in ship prices due to the monopoly of the LNG carrier market will affect LNG freight rates, which in turn may lead to an increase in LNG fuel prices.
According to this decision, the merger and acquisition (M&A) that had been dragged on for nearly three years since the signing of the privatization contract with Daewoo Shipbuilding in March 2019 was ultimately unsuccessful.
[앵커]
Then, what is the reason why the merger between domestic companies is canceled due to the EU’s decision?
[기자]
It is not common for other countries to review mergers between domestic companies.
However, in the case of the shipbuilding industry, it is subject to examination by anti-monopoly authorities in six countries, including the EU, which has many orders for ships.
It is reviewed by Kazakhstan, Singapore, China, the EU, Korea, and Japan. Among them, the previous three countries passed the merger review, but did not cross the EU wall.
The absence of EU approval means that orders cannot be received in Europe, where the largest number of ship customers are located, so the remaining approval procedures in Korea and Japan have become meaningless.
[앵커]
What is the position of Hyundai Heavy Industries Group, which was the subject of the acquisition, on the EU’s decision to disapproval?
[기자]
Hyundai Heavy Industries Group is strongly opposed.
The EU’s decision was criticized as irrational and regrettable.
Even if the two companies had high market shares in the past, the shipbuilding industry might change its share at any time through bidding competition.
In the LNG carrier market, he argued that there is no concern regarding a monopoly because there are multiple competitors such as South Korea’s Samsung Heavy Industries and China and Japan.
Hyundai Heavy Industries is in the position of reviewing the final decision and requesting a correction to the EU court, but it seems unlikely that this decision will be overturned.
[앵커]
What kind of impact do you think the merger will have on the two companies in the future?
[기자]
Fortunately, the shipbuilding industry is currently booming, so the impact on the management of the two companies is not expected to be significant.
Korea Shipbuilding & Marine Engineering, which was the main body of the acquisition, is now able to save regarding 1.5 trillion won, which it was trying to put in following the acquisition of DSME, and invest it in other businesses.
However, Daewoo Shipbuilding & Marine Engineering may suffer a little in the short term.
This is because the failure of the acquisition transaction might be interpreted as a failure of the capital expansion plan for DSME.
In addition, due to the rise in raw material prices last year, the debt ratio soared close to 300% in the third quarter, and there are also points out that cash flow problems may arise in the execution of large-scale funds, such as the purchase of heavy plates, to manufacture the rapidly increased order volume by receiving only a down payment.
[앵커]
In addition, the original purpose of the merger was to reduce competition among domestic companies and realize economies of scale. How regarding the impact on the overall shipbuilding industry?
[기자]
For now, the negative impact of the merger is not expected to be significant.
This is because, as I said, the current shipbuilding market situation has improved significantly compared to 2019, when the merger was attempted.
However, the failure of the merger is clearly a bad thing for the Korean shipbuilding industry in that the industry can change at any time, and Daewoo Shipbuilding cannot be left without owners indefinitely.
The shipbuilding industry plays a very important role in the national economy, with almost 100% of its exports.
However, in the current big three systems of Korea Shipbuilding & Marine Engineering, Samsung Heavy Industries, and Daewoo Shipbuilding & Marine Engineering, there is no choice but to cause bleeding competition between domestic companies, overlapping investments, and low-priced orders, so improvement is needed.
Finding a new owner is also a burden.
Since Korea Shipbuilding & Marine Engineering has already failed to obtain a license due to monopoly concerns, Samsung Heavy Industries is not eligible and must find a company in another new industry.
Potential acquisition candidates include POSCO, Hanwha, and Hyosung, but it is unlikely that it will be easy to find a buyer as Daewoo Shipbuilding & Marine Engineering is so large.
In a press release issued following the merger was canceled, the government stated that it was necessary to ‘find a private owner’ for the fundamental normalization of Daewoo Shipbuilding.
In the end, the privatization of Daewoo Shipbuilding & Marine Engineering was passed on to the next government.
Until now, this is Park Hong-goo from the Ministry of Economy.
YTN Park Hong-gu ([email protected])
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