Korea Development Bank Chairman Lee Dong-geol (left) and Hyundai Heavy Industries Group Chairman Kwon Oh-gap (right) signed a main contract for the acquisition of Daewoo Shipbuilding & Marine Engineering in March last year (Photo = Hyundai Heavy Industries Group).
Hyundai Heavy Industries Group received approval from the Chinese government for the examination of a business combination for the acquisition of Daewoo Shipbuilding & Marine Engineering. Only the approval of the European Union (EU), Japanese and Korean governments, which are ambush, remains in the examination of the merger. In particular, the EU’s business combination review is delayed due to Corona 19 and is expected to pass the year.
Korea Shipbuilding & Marine Engineering announced on the 28th that it has received a notification of’unconditional approval’ regarding the business combination (with Daewoo Shipbuilding & Marine Engineering) from the China State Market Supervision and Management Administration (SAMR). SAMR is a Chinese competition authority, a ministry that acts like Korea’s Fair Trade Commission.
SAMR said, “As a result of reviewing Article 26 of the Antitrust Law in China, it has been decided that there is no market competition restriction due to the combination of Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering.” Korea Shipbuilding & Marine Engineering submitted an application for a business combination review to SAMR in July of last year. It went through the 3rd screening, and the business combination was approved after 1 year and 5 months.
Korea Shipbuilding & Marine Engineering, Daewoo Shipbuilding & Marine Engineering Corporate Combination Examination Status. (Source = Korea Shipbuilding & Marine Engineering)
China is in a competitive relationship with the Korean shipbuilding industry. Currently, the countries that mainly produce commercial ships in the global shipbuilding market are Korea and China. 80% of ships ordered from around the world are ordered by Korea and China. According to Clarkson Research, a shipbuilding and shipping analysis agency, from January to November this year, the total number of orders received by country was 6.66 million CGT (298 vessels, 46%) in China and 5.0.2 million CGT (137 vessels, 35%) in Korea. . Japan is inferior to Korea and China with 1.18 million CGT (78 ships, 8%).
As such, it is positive that the Chinese government approved this business combination review. As the Chinese shipbuilding industry is frighteningly following Korea, concerns have been raised in China that the combination of Korean Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering could widen the gap with the Chinese government. Nevertheless, the Chinese government made a decision to’unconditionally approve’.
The shipbuilding industry has previously made observations that the Chinese government is not a variable. This is because the Chinese manufacturer was terribly swelling through mergers and acquisitions (M&A). Baoyu Steel, the second largest in the world, has emerged as a global steel maker by absorbing medium-sized steel makers. Over the past decade, iron production has increased by 61%. A Chinese manufacturer has grown through a consolidation between companies, and it was pointed out that opposing the consolidation of Korean shipbuilders could lead to a’self-contradiction’.
For this reason, it is explained that the approval of the business combination by the Chinese government was foreseen.
On the other hand, the EU believes that the merger of Korea Shipbuilding & Marine Engineering and Daewoo Shipbuilding & Marine Engineering will have a negative impact on member countries. It is explained that the merger between the two shipbuilders may weaken the bargaining power of their own shipbuilders. As each country applying for a merger has different interests, the results of the review are still indefinite.
The results of the corporate combination screening have been delayed due to the corona 19 pandemic. Initially, Hyundai Heavy Industries Group planned to complete the business combination by 2019 and complete the acquisition process. As the business combination screening eventually passes over the year, the time required is expected to exceed two years. For Daewoo Shipbuilding & Marine Engineering, uncertainties in management persist as the acquisition process is prolonged.
Hyundai Heavy Industries Group was selected as the preferred negotiator of Doosan Infracore on the 23rd. Upon signing this contract, it is subject to examination of business combinations by major countries. Hyundai Heavy Industries Group has a construction equipment subsidiary, Hyundai Construction Equipment. When the two companies merge, their market share will vertically rise to the fifth in the world. As Hyundai Construction Equipment’s market dominance is increasing, the merger is not complete until it undergoes a merger review.
In this case, for the first time in the history of the Hyundai Heavy Industries Group, two business combinations will be examined simultaneously. This is evidence that Hyundai Heavy Industries Group has emerged as a’big hand’ in the M&A market. Some point out that Hyundai Heavy Industries Group is unreasonably increasing its market dominance based on its financial power.