The European Commission has prohibited, under the EU Merger Regulation, the acquisition of Daewoo Shipbuilding & Marine Engineering CO., Ltd (DSME) by Hyundai Heavy Industries Holdings (HHIH).
The merger between the two South Korean shipbuilders would have created a dominant position by the new merged company and reduced competition in the worldwide market for the construction of large liquefied gas (‘LNG’) carriers (‘LLNGCs’).
The decision follows an in-depth investigation by the Commission of the proposed transaction.
The Commission found that the transaction, as notified, would have resulted in (i) the creation of a dominant position by the merged company in the market for the construction of large LNG carriers, (ii) a reduced choice in suppliers and (iii) higher prices for EU customers and ultimately for energy consumers. The Commission’s decision is based on the following considerations: (i) the parties enjoy very large and increasing market shares; (ii) there are very few alternatives for customers; (iii) there is limited capacity in the market; (iv) there are very high barriers to entry and no buyer power; and (v) the coronavirus pandemic has had no impact on the demand for large LNG carriers.
The parties did not formally offer remedies to meet the Commission concerns. Consequently, the Commission has prohibited the proposed transaction. Executive Vice-President Margrethe Vestager, in charge of competition policy, said: “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. 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.” A press release is available online.