The European Union (EU) has launched an in-depth review of the proposed deal by South Korean shipbuilder Hyundai Heavy Industries to take over its smaller local rival, Daewoo Shipbuilding & Marine Engineering Co.
The world’s single largest economic bloc’s European Commission said it will decide by May 7 whether the takeover, if completed, is likely to significantly impede effective competition.
The commission has expressed concerns after its preliminary investigation that the merger between the two South Korean shipyards may remove Daewoo Shipbuilding as an important competitive force in such markets as large container ships and oil tankers, and that customers would not have sufficient bargaining power to constrain the merged entity.
“We will carefully assess whether the proposed transaction would negatively affect competition in the construction of cargo ships, to the detriment of European consumers,” Margrethe Vestager, executive vice-president in charge of competition policy at the commission, said in comments posted on the commission’s website.
Cargo shipbuilding is an important industry for the EU. Maritime transport represents about 30 percent of EU internal freight trade and 90 percent of EU external freight trade. European shipping companies are major customers of the two South Korean shipbuilders, and represent 30 percent of worldwide demand for cargo ships.
The commission said the transaction may significantly reduce competition in the market for cargo shipbuilding, which could lead to higher prices, less choice and reduced incentives to innovate.
Still, the commission said the opening of an in-depth investigation does not prejudge the outcome of the investigation.
In March, Hyundai Heavy, the world’s largest shipbuilder by sales, signed a formal deal with South Korea’s state-run Korea Development Bank to buy Daewoo Shipbuilding, the world’s second-biggest shipbuilder by sales.
The deal is subject to approval from antitrust regulators in South Korea and other countries, including Japan, China, Singapore and the European Union.
The deal, if approved, would create the world’s largest shipbuilding group.
Joh Sung-wook, the chairperson of the Fair Trade Commission, said last month that the commission will quickly decide whether to approve Hyundai Heavy’s takeover of Daewoo Shipbuilding. She neither gave a specific time frame nor any details.
In November, Kazakhstan’s antitrust regulator endorsed the deal.