Tuesday, December 5, 2023

EU blocks takeover of DSME by Hyundai Heavy Industries

EU Commission Executive Vice-President for Competition Policy Margrethe Vestager gives a press conference on a competition case in Brussels, January 13, 2022.

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The European Commission has prohibited the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) by Hyundai Heavy Industries Holdings (HHIH), noting that 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).

“They are both very strong players in the market for the construction of large vessels transporting liquefied natural gas – so-called LNG. These are highly sophisticated vessels transporting LNG at minus 162 degrees. Only a handful of shipbuilders around the world are able to build these vessels,” EU Commission Executive Vice-President for Competition Policy Margrethe Vestager said on January 13. The merger would have created a dominant position in the 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. As a result, the merger could not be approved,” she added.

Vestager explained that the Commission’s goal with EU merger control is to prevent the creation of monopolies or dominant players harming competition and business customers or consumers.

LNG, large LNG carriers and the EU economy

LNG is one of Europe’s sources of energy and it can be transported over long distances, without the need of pipelines, typically in specially designed vessels, Vestager said, adding that this means that the sources of supplies can be diversified as LNG is imported from different parts of the world.

“A key objective of the EU’s energy union is to ensure that all Member States have access to liquid gas markets.  Such access improves energy security. And today’s energy situation in Europe reminds us forcefully that the diversification of sources of supply is fundamental. About a quarter of all of the EU’s energy consumption is accounted for by natural gas, most of which is imported, including in the form of LNG,” Vestager said.

She noted that the products at the core of today’s decision are an essential element in the supply chain of LNG given that large LNG vessels bring LNG from different production regions to Europe. One large LNG vessel can transport more than 145,000 cubic meters of LNG. This is the equivalent of over 70 Olympic swimming pools.

The worldwide market for the construction of large LNG carriers represented around €40 billion in the last five years. It is a large market, and the importance for Europe is also reflected in the fact that around half of all orders for these vessels come from European customers, Vestager said.

“With demand of LNG growing all over the world, it is all the more important that the market for the construction of large LNG carriers remains dynamic, delivering vessels of high quality at competitive prices,” she stressed.

The Commission’s investigation started in November 2019 and was suspended several times as the parties did not provide the information requested by the Commission in a timely manner.

“Still, our investigation continued with regular exchanges with the parties and stakeholders. We also had regular contacts with other agencies such as the Korean Fair Trade Commission and Japan’s Fair Trade Commission. We collected and reviewed large quantities of documents from the parties and received substantial feedback from competitors, customers and many other stakeholders,” she said.

“The impact of the coronavirus pandemic on the market was part of our competition analysis. As the outlook on demand for large LNG carriers remains very positive, the fundamentals of our analysis remained unchanged over the course of the investigation,” Vestager said.

“All the evidence gathered in our in-depth assessment led us to conclude that the merger would significantly reduce competition in the market for large LNG vessels. Shipyards building such vessels are located in Asia – South Korea for the two parties – whilst customers are located around the world, so we found the market to be global,” Vestager said.

The EU’s antitrust chief stressed that, after the merger, the new entity would have become, by far, the largest player, with a market share exceeding 60%. “And European customers would be left with few alternatives to the merged entity. Only a handful of competitors would have remained in the market, with limited capacity to compete with the new entity,” she said.

“Not only would the merger remove one independent shipbuilder from the market, but we also found that the merging parties were very close competitors on all the parameters that matter for choice in this market. These parameters are price, quality, slot availability, delivery time, engineering skills, track record and historical customer relationship,” Vestager said.

Large LNG vessels are highly complex and sophisticated products, very difficult to build and they require specific engineering expertise. This means that reliability and a strong track record are of utmost importance to secure orders. And both merging parties are considered very reliable and skilled. This is why the parties often participate in the same tenders, Vestager said.

“These characteristics of large LNG vessels also mean that barriers to entry in this market are significant and therefore, the threat of new entry is not a credible constraint. So, we concluded that the merger would have significant negative effects on competition,” the VP said.

“When we have competition concerns, companies can offer remedies to address the potential harm of the merger. In this case, no remedy offer was ultimately made.  So given the evidence of the negative effects of the merger and the absence of remedies, the Commission decided to block the merger,” Vestager said.

“Our decision today means that European carriers will continue to have sufficient options to procure large LNG vessels. This important part of the transport supply chain for LNG will remain competitive, preserving the drive for shipbuilders to compete on prices, high quality and innovation,” Vestager said, adding, “Merger control is about keeping markets open and competitive.  It is about ensuring that European businesses have access to competitive alternatives. It does not matter where the merging firms are located. What matters is whether they compete for demand in Europe.  Companies are always welcome to grow by acquisition, as long as this is not at the expense of choice, price, quality and innovation in the European Single Market”.





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Co-founder / Director of Energy & Climate Policy and Security at NE Global Media


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