The European Commission (EC) has launched a detailed investigation into the $1.8bn acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) by Hyundai Heavy Industries (HHI).
The investigation will be conducted under the EU Merger Regulation and will assess whether the merger will negatively impact competition in cargo shipbuilding markets across the world.
Executive vice-president Margrethe Vestager said: “Cargo shipbuilding is an important industry for the European Union.
“Maritime transport represents a substantial portion of the EU’s internal and external freight trade, with European shipping companies regularly purchasing vessels from DSME and HHIH, two of the leading cargo shipbuilders in the world.
“This is why we will carefully assess whether the proposed transaction would negatively affect competition in the construction of cargo ships to the detriment of European consumers.”
The in-depth review was launched after the completion of a primary review. In its primary review, the commission found that other shipbuilders in the four markets, where the DSME and HHI together have a strong influence, will not be able to compete with the united entity.
Concerns were raised in relation to customers who are not likely to have sufficient bargaining power if the companies merged. The commission found that other shipbuilders face high entry barrier to the four identified markets.
After the preliminary inquiry, the commission concluded that the merger of DSME and HHI will considerably lessen competition in the cargo shipbuilding market. It will also result in higher prices, fewer options and decreased incentives to innovate.
HHI agreed to acquire a controlling stake in its rival DSME from Korea Development Bank (KDB) in February.
Following the completion of the deal, HHI plans to set up a joint shipbuilding venture with KDB, which holds the largest share in DSME.
With a 21% market share, the combined company is expected to become the largest ship-maker in the world.
In July, HHI requested the South Korean Fair Trade Commission (FTC) to grant permission for the proposed takeover of DSME.
HHI has filed similar applications with antitrust authorities in Japan, China and Singapore, with additional plans to request permission from the regulators of other countries.