EU blocks takeover of DSME by Hyundai Heavy Industries

The European Commission has prohibited the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) by Hyundai Heavy Industries Holdings (HHIH), noting that the merger between the 2 South Korean shipbuilders would have created a dominant place by the brand new merged firm and diminished competitors within the worldwide marketplace for the development of enormous liquefied gasoline (LNG) carriers (LLNGCs).

“They are both very strong players in the market for the construction of large vessels transporting liquefied natural gas – so-called LNG. These are highly sophisticated vessels transporting LNG at minus 162 degrees. Only a handful of shipbuilders around the world are able to build these vessels,” EU Commission Executive Vice-President for Competition Policy Margrethe Vestager stated on January 13. The merger would have created a dominant place out there for the development of enormous LNG carriers. This would have led to much less selection, larger costs and finally much less innovation for European clients. The firms didn’t submit any formal treatments to offset the detrimental results of the acquisition. As a consequence, the merger couldn’t be accepted,” she added.

Vestager defined that the Commission’s objective with EU merger management is to forestall the creation of monopolies or dominant gamers harming competitors and enterprise clients or shoppers.

LNG, giant LNG carriers and the EU economic system

LNG is one in every of Europe’s sources of vitality and it may be transported over lengthy distances, with out the necessity of pipelines, sometimes in specifically designed vessels, Vestager stated, including that which means the sources of provides could be diversified as LNG is imported from totally different components of the world.

“A key objective of the EU’s energy union is to ensure that all Member States have access to liquid gas markets.  Such access improves energy security. And today’s energy situation in Europe reminds us forcefully that the diversification of sources of supply is fundamental. About a quarter of all of the EU’s energy consumption is accounted for by natural gas, most of which is imported, including in the form of LNG,” Vestager stated.

She famous that the merchandise on the core of at the moment’s determination are a vital ingredient within the provide chain of LNG given that giant LNG vessels deliver LNG from totally different manufacturing areas to Europe. One giant LNG vessel can transport greater than 145,000 cubic meters of LNG. This is the equal of over 70 Olympic swimming swimming pools.

The worldwide marketplace for the development of enormous LNG carriers represented round €40 billion within the final 5 years. It is a big market, and the significance for Europe can be mirrored in the truth that round half of all orders for these vessels come from European clients, Vestager stated.

“With demand of LNG growing all over the world, it is all the more important that the market for the construction of large LNG carriers remains dynamic, delivering vessels of high quality at competitive prices,” she pressured.

The Commission’s investigation began in November 2019 and was suspended a number of instances because the events didn’t present the knowledge requested by the Commission in a well timed method.

“Still, our investigation continued with regular exchanges with the parties and stakeholders. We also had regular contacts with other agencies such as the Korean Fair Trade Commission and Japan’s Fair Trade Commission. We collected and reviewed large quantities of documents from the parties and received substantial feedback from competitors, customers and many other stakeholders,” she stated.

“The impact of the coronavirus pandemic on the market was part of our competition analysis. As the outlook on demand for large LNG carriers remains very positive, the fundamentals of our analysis remained unchanged over the course of the investigation,” Vestager stated.

“All the evidence gathered in our in-depth assessment led us to conclude that the merger would significantly reduce competition in the market for large LNG vessels. Shipyards building such vessels are located in Asia – South Korea for the two parties – whilst customers are located around the world, so we found the market to be global,” Vestager stated.

The EU’s antitrust chief pressured that, after the merger, the brand new entity would have turn into, by far, the biggest participant, with a market share exceeding 60%. “And European customers would be left with few alternatives to the merged entity. Only a handful of competitors would have remained in the market, with limited capacity to compete with the new entity,” she stated.

“Not only would the merger remove one independent shipbuilder from the market, but we also found that the merging parties were very close competitors on all the parameters that matter for choice in this market. These parameters are price, quality, slot availability, delivery time, engineering skills, track record and historical customer relationship,” Vestager stated.

Large LNG vessels are extremely advanced and complicated merchandise, very tough to construct they usually require particular engineering experience. This signifies that reliability and a powerful observe report are of utmost significance to safe orders. And each merging events are thought-about very dependable and expert. This is why the events typically take part in the identical tenders, Vestager stated.

“These characteristics of large LNG vessels also mean that barriers to entry in this market are significant and therefore, the threat of new entry is not a credible constraint. So, we concluded that the merger would have significant negative effects on competition,” the VP stated.

“When we have competition concerns, companies can offer remedies to address the potential harm of the merger. In this case, no remedy offer was ultimately made.  So given the evidence of the negative effects of the merger and the absence of remedies, the Commission decided to block the merger,” Vestager stated.

“Our decision today means that European carriers will continue to have sufficient options to procure large LNG vessels. This important part of the transport supply chain for LNG will remain competitive, preserving the drive for shipbuilders to compete on prices, high quality and innovation,” Vestager stated, including, “Merger control is about keeping markets open and competitive.  It is about ensuring that European businesses have access to competitive alternatives. It does not matter where the merging firms are located. What matters is whether they compete for demand in Europe.  Companies are always welcome to grow by acquisition, as long as this is not at the expense of choice, price, quality and innovation in the European Single Market”.






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