EC adopts a decision prohibiting a merger that would combine two leading global shipbuilding companies
The European Commission has adopted a decision prohibiting a merger that would combine two leading global shipbuilding companies. The European Commission website has published remarks of Executive Vice-President Vestager.
"The merger concerns the acquisition by Hyundai Heavy Industries Holding of Daewoo Shipbuilding and Marine Engineering.
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.
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.
Our goal with EU merger control is to prevent the creation of monopolies or dominant players harming competition and business customers or consumers. This assessment includes balancing the positive and negative effects of a possible deal. Our decisions are based on facts and in-depth legal and economic assessments. Our merger decisions serve the interest of all Member States and citizens.
In the last ten years, we cleared more than 3,000 mergers. Because most mergers are either unproblematic or companies are willing to offer remedies that would solve our competition concerns. So most of the time, solutions are found to ensure competition is preserved and prohibitions are extremely rare. Today's prohibition is the tenth merger blocked over the past ten years.
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. 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.
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 thousand 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 forty billion Euros 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.
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.
Our 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.
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.
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.
After the merger, the new entity would have become, by far, the largest player, with a market share exceeding 60 percent.
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.
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.
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.
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.
So given the evidence of the negative effects of the merger and the absence of remedies, the Commission decided to block the merger."
