The European Commission has scuppered plans by Hyundai Heavy Industries Holdings (HHIH) to acquire Daewoo Shipbuilding & Marine Engineering – a move it said would reduce competition in the worldwide market for the construction of large liquefied natural gas (LNG) carriers (LLNGCs).
Under EU Merger Regulation, the merger of the South Korean shipbuilding giants would have put them in a dominant position, raising concerns among customers and competitors.
“Large LNG vessels are an essential element in the supply chain of liquefied natural gas and enable the transport of this source of energy around the globe,” said executive vice-president in charge of competition policy at the Commission, Margrethe Vestager.
“LNG contributes to the diversification of Europe's source of energy and therefore improves energy security.
"The merger between HHIH and DSME would have led to a dominant position in the global market for the construction of large LNG vessels, for which there is significant demand from European carriers
"Given that no remedies were submitted, the merger would have led to fewer suppliers and higher prices for large vessels transporting LNG. This is why we prohibited the merger.”
The decision follows an in-depth investigation by the Commission into the proposed transaction, which would have combined DSME and HHIH, two worldwide leading shipbuilders.
Both companies are global leaders in the field, and two of the three largest players in this very concentrated market.
Large LNG carriers are an essential element in the supply chain of LNG.
They are highly sophisticated vessels that can carry large quantities of LNG (145 000m3 and above) at a temperature of minus 162 degrees Celsius.
Over the past five years, the worldwide market for the construction of large LNGs represented up to €40 billion, with European customers accounting for almost 50% of all orders.
During the investigation, the Commission received feedback from a number of customers, competitors and other third parties.
These companies were concerned that the transaction would create a company with a dominant position in the worldwide market for the construction of these carriers, reduce competition and increase prices.
According to the Commission, there are very few alternatives for customers.
Besides the parties, there is only one other large competitor in the market.
However, this company’s capacity would not have been sufficient to act as a credible constraint on the new company resulting from the merger.
A fourth independent shipbuilder has limited activities in the large LNG carriers market and focuses on domestic projects.
The remaining shipbuilders would not be able to constrain price increases as demonstrated by the fact that they have not contracted any large LNG carrier in recent years.