HD Hyundai files complaint against EU's veto of DSME merger

HD Hyundai, formerly known as Hyundai Heavy Industries Holdings Co., has filed a complaint against the European Commission, the executive body of the European Union, over its veto in January of Hyundai’s proposed merger with crosstown rival Daewoo Shipbuilding & Marine Engineering Co.

The holding company of the world’s largest shipbuilder, Hyundai Heavy Industries Co., said on Monday it filed the complaint with the Court of Justice of the European Union on March 23.

“We believe it was not reasonable for the EU to judge the merged entity’s expected market dominance based solely on the two companies’ market shares. So, we’re seeking the court’s judgment on this matter,” said an official at the shipbuilder’s holding company.

However, the official said Hyundai doesn’t intend to rebid for DSME, the world’s second-largest shipbuilder, when it comes up for sale again.

On Monday, Hyundai Heavy Industries Group officially changed its name to HD Hyundai at its shareholders’ meeting as it is seeking to transform into an entity focused on new growth drivers, including M&As.

KOREA’S RESTRUCTURING OF SHIPBUILDING INDUSTRY

In mid-January, the European Commission rejected Hyundai Heavy’s proposal to acquire DSME, citing concerns that the combination would “create a dominant position and reduce competition in the construction of large liquefied natural gas carriers." The commission said the two shipbuilders also failed to formally offer remedies to address such concerns.

For the deal to go through, Hyundai needed to get approval from six antitrust regulators across the globe, including the EU and Korea’s Fair Trade Commission.

As a condition for the merger, EU antitrust regulators last year called for selling part of either Hyundai's or Daewoo's LNG carrier business to lower their combined LNG ship market share to below 50%.

But the world's largest shipbuilder rejected the demand. Instead, it offered to transfer LNG-related technologies to competitors, which apparently fell short of the commission's requirements.

Of 83 LNG carriers ordered globally, Hyundai Heavy and DSME secured deals for 47 ships, or 56.6% of the total.

Lee Dong-gull, chairman of Korea’s state-run Korea Development Bank, which is also the main creditor of DSME, said Europe is home to the world’s largest ship owners and its rejection of the merger was likely based on European self-interest.

The EU’s opposition to the mega-merger effectively sent the Korean government’s planned restructuring of the local shipbuilding industry back to the drawing board.

The government has pushed for the full privatization of Daewoo Shipbuilding to recover taxpayers’ money and has worked to streamline the shipbuilding industry through a merger to tighten its lead over rival shipbuilders, particularly those in China.

Industry watchers said HD Hyundai’s complaint against the EU doesn’t have a good chance of winning, but could set a precedent against decisions to address monopoly concerns based solely on the combined market share of two merged entities.

DOMESTIC BUYER FOR DSME

Analysts said Daewoo’s main creditor will seek another domestic buyer now that its sale to Hyundai Heavy has failed.

KDB Chairman Lee said earlier this year the creditor bank believes it is realistically impossible to sell Daewoo Shipbuilding to a foreign buyer because of its shipbuilding technology and business secrets.

"Daewoo Shipbuilding has technologies for warships and special vessels and sophisticated technologies to build LNG ships," Lee told reporters at the time.

Daewoo Shipbuilding has been under creditor protection since 2000 after it amassed heavy debt in the wake of the 1997-98 Asian financial crisis.

In March 2019, Hyundai Heavy Industries agreed to acquire a 55.7% stake in the smaller rival from the KDB for 2 trillion won ($1.6 billion), alongside a pledge to inject 1.5 trillion won into Daewoo.

Meanwhile, DSME on Monday named Park Doo-seon as its new chief executive.

He is expected to resume the sale of the company after Korea’s President-elect Yoon Suk-yeol takes office in May.

DSME, which posted 1.75 trillion won in operating loss last year due to heavy loss provisionings against higher raw material prices, has so far secured shipbuilding orders for 18 vessels worth $4.18 billion, 47% of its 2022 target.

Write to Jung-hwan Hwang at jung@hankyung.com
In-Soo Nam edited this article.