Shipbuilding Mega-Merger Blocked: European Commission Prohibits Hyundai Heavy Industries’ Takeover of DSME

The European Commission has rejected the proposed merger between South Korean shipbuilders Daewoo Shipbuilding & Marine Engineering (DSME) and Hyundai Heavy Industries Holdings (HHI), saying the combination would create a dominant position that reduces competition in the global market for LNG carriers.

The Commissions says the decision comes following an in-depth investigation of the proposed transaction. DSME and HHI are two of the three largest shipbuilders of in the LNG segment, and over the last five years European customers have accounted for almost 50% of all orders.

The combination of the two would create a company holding a “dominant position” in the global market for the vessels, holding a market share of at least 60%, which would result in reduced competition and higher prices, the Commission said. The two shipbuilders have also not formally offered remedies to address the Commission’s concerns and, consequently, the Commission has prohibited the proposed transaction.

“Large LNG vessels are an essential element in the supply chain of liquefied natural gas (LNG) and enable the transport of this source of energy around the globe,” said Margrethe Vestager, the Commission’s Executive Vice-President in charge of competition policy. “LNG contributes to the diversification of Europe’s source of energy and therefore improves energy security. The merger between HHIH and DSME would have led to a dominant position in the global market for the construction of large LNG vessels, for which there is significant demand from European carriers. Given that no remedies were submitted, the merger would have led to fewer suppliers and higher prices for large vessels transporting LNG. This is why we prohibited the merger.”

The proposed transaction dates back to 2019 when Hyundai Heavy Industries, seeking to reinforce its position as the world’s biggest shipbuilder amid increasing competition from China, launched a $1.8 billion takeover of DSME.

Almost immediately, the European Commission opened an in-depth investigation. Since then, the deadline of the procedure was suspended three times due to the failure of HHI to provide information requested in a timely manner, according to the Commission.

According to the Commission, the acquisition is only the tenth merger that it has blocked over in the past 10 years.

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