The European Commission decided on Thursday 13 January to prohibit 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 global market for the construction of large liquefied natural gas (LNG) carriers. The parties did not formally propose any remedies to address the Commission’s concerns (see EUROPE 12867/13).
Margrethe Vestager, the Commission’s Executive Vice-President in charge of competition policy, told the press that the merger “would have created a dominant position by the new merged company and reduced competition in the worldwide market for the construction of large LNG carriers. This would have led to less choice, higher prices and ultimately less innovation for European customers. The companies did not submit any formal remedies to offset the negative effects of the acquisition”.
“Today’s prohibition is the tenth merger blocked over the past ten years,” Ms Vestager added.
DSME and HHIH are world leaders in the construction of large LNG carriers and two of the three largest players in this highly concentrated market.
Large LNG carriers are highly sophisticated vessels capable of transporting large quantities of LNG (>145,000 m³) at a temperature of minus 162 degrees Celsius.
Over the past five years, the global market for the construction of large LNG carriers has been worth up to €40 billion, with European customers accounting for almost 50% of all orders.
While, when the in-depth investigation was opened in November 2019, the Commission had raised concerns about the markets for the construction of oil tankers, liquefied petroleum gas (LPG) carriers, container ships and LNG carriers (both large and small), Thursday’s decision concerns only the market for large LNG carriers.
The Commission found that the transaction, as notified, would have led to the creation of a dominant position by the merged company in the market for the construction of large LNG tankers:
- the combined entity would have been by far the largest player in the world, in an already concentrated market. The combined market shares of the parties would be at least 60%, which in itself is an indication of market dominance;
- there are very few alternatives for customers (only one other major competitor on the market);
- the merged entity would have held a central position in the market, as the capacity of the remaining competitors would not have been sufficient to cover the expected market demand;
- there are very high barriers to market entry (and no buyer power);
- demand from large LNG carriers has not been affected by the Covid-19 pandemic.
The parties did not formally propose any remedies to address the Commission’s concerns. Consequently, the Commission prohibited the proposed transaction.
Responding to questions from journalists, Ms Vestager said: - “Our daily life is affected by the functioning of these markets” (gas) and it is very difficult to enter these markets; - the situation on the Chinese market (China has validated this merger) after the merger is not comparable to that on the EU market; - “We have also had regular contact with other bodies such as the Korean Fair Trade Commission and the Japan’s Fair Trade Commission and we have to wait for their conclusions” on this matter.
More info: https://bit.ly/3qqdDw4 (Original version in French by Lionel Changeur)