HHI-DSME Merger Put under EU Microscope
The European Commission (EC) has launched an in-depth review of Hyundai Heavy Industries’ acquisition of Daewoo Shipbuilding & Marine Engineering (DSME).
The European Commission's Fair Competition Subcommittee said on Dec. 17 (local time) that it will carefully assess whether the proposed transaction would negatively affect competition in the construction of cargo ships to the detriment of European consumers.
The investigation, which will continue until May 7, 2020, is expected to focus on the two shipbuilders’ combined share in the LNG tanker market. At present, the two companies’ combined share in the global LNG tanker market is about 60 percent. It dwarfs the two’s combined share in the market of all types of ships, which stands at 21 percent. In addition, LNG carrier orders are on a steady rise.
Accordingly, the EC is expected to pay attention to the consequences of a hike in LNG carrier prices following the union of the two Korean shipbuilding giants. Experts believe that the EU is highly likely to use the “small but significant and non-transitory increase in price (SSNIP)” test as the basic assessment method. The SSNIP test checks the change in sales when the price of a product is raised 5 to 10 percent. It assumes that if a company born out of a merger would increase the price of its product if it can expand profits because a price hike does not cause many customers to stop buying the product.
Hyundai Heavy Industries Group has been going through a review of the marriage between the two shipbuilders in six countries since the Korean Fair Trade Commission began its review in July. In October, the merger plan was first approved by Kazakhstan. It submitted review applications to China in July, Kazakhstan in August and Singapore in September, and has been discussing the issue with Japan since September. A rumor went around that rival countries will additionally join the review process. But finally, the process was set to involve the six countries.