South Korea: Two of World’s Biggest Shipbuilders Merge in $2 Billion Deal

One of the biggest deals in the world went down today in South Korea, as the world’s biggest shipbuilder Hyundai Heavy Industries took over the second largest Daewoo in a deal worth $2 billion. According to multiple reports, Hyundai completed the deal in a share swap deal, and the new entity would control a whopping 20% of the global shipbuilding market from now on.

However, it would be an understatement to say that the shipbuilding industry had been in trouble over the recent years. The global shipbuilding industry had gone through a massive downturn that precipitated crippling losses for and job cuts. Back in 2017 Daewoo Shipbuilding and Marine Engineering Company Limited were handed a bailout worth $2.6 billion.

One of the most important players in the deal has been the Korean Development Bank (KDB), which owns almost a 56% stake in Daewoo and has stated that it is ready to sell its stake to consolidate the South Korean shipbuilding market. The other major shipbuilder in South Korea is the Samsung Heavy Industries Co. Ltd.

The Chairman of KDB, Lee Dong-gull seemed upbeat at the prospect of the deal. He pointed out that the merger of two of the world’s greatest shipbuilding companies will not only open up excess capacity but also ensure that there is less competition, thereby allowing the merged entity to capture a large percentage of the market share. He added, that “[the deal would] raise the fundamental competitiveness of Daewoo, at a time when the threat from latecomers in China and Singapore is growing,” 

According to data collected by Clarksons Research, Hyundai and Daewoo control more than 21% of the market while Imabari Shipbuilding from Japan comes in at a distant 3rd with a market share of 6.6%. All said and done, this merger is, however, far from being complete.

Antitrust regulators would go through the deal, and it might take many months before any kind of approval for the deal could be provided. Lee added that the size of the merged entity should not be seen as something that runs contrary to the interests of the consumers. More importantly, he also ruled out the possibility of any job cuts. While the shares of Daewoo rose by 22% following the news, the shares of Hyundai tanked by 4% as investors feared the prospect of such a costly purchase in a troubled industry.

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