DSME acquisition may receive conditional approval from FTC

Daewoo Shipbuilding & Marine Engineering's (DSME) Okpo shipyard in South Gyeongsang [YONHAP]

Korean antitrust regulators may approve the 2-trillion-won ($1.5-billion) purchase of Daewoo Shipbuilding & Marine Engineering (DSME) by a number of related companies, though conditions could be set.

The Fair Trade Commission (FTC) on Monday said that it is “discussing measures to resolve concerns regarding limited competition."

Five related companies — Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners, Hanwha Energy Singapore and Hanwha Convergence — announced a plan to buy the troubled Korean shipbuilder in September last year, and filed a merger application in December to purchase 49.3 percent of DSME through a rights offering.

As the European Union approved the plan on March 31, the decision from the home country is the only step left for the acquisition to get the final green light.

Applications for the acquisition were filed with seven foreign government authorities, including those of Turkey, Britain, Japan, Vietnam, China and Singapore, which all gave a go-ahead for the takeover deal.

As questions arose about the lack of a response from the domestic regulator, the FTC held a rare press briefing on Monday to explain possible implications and concerns related to the acquisition.

The FTC suggested that market competition may be undermined in the navy vessel building business as a result of the merger.

Hanwha companies produce about 10 types of equipment for navy vessels, such as battle command systems and radars, while DSME builds navy vessels using the parts.

“If the technological information on the vessel parts is provided to the rival companies only on a limited scale, the rival companies may suffer a disadvantage in winning the shipbuilding contracts” compared to DSME, said the FTC spokesperson.

Competing shipbuilders, such as HD Hyundai Heavy Industries, are suggesting that Hanwha companies may supply the vessel parts at a cheaper price to DSME than the other shipbuilders.

“We cannot decisively say what kind of a corrective action order will be imposed,” said the FTC spokesperson.

Possible corrective action orders may involve selling certain businesses that may limit the competition, or prohibiting the company from certain business activities for a set time period.

In a statement, the buyers said “it is not consistent with the facts that the FTC is currently in discussion with Hanwha in regards to measures to resolve concerns on the limited competition, and no detailed suggestions were made from the FTC on corrective measures.”

"The uncertainties are persisting due to the delay in the reviewing process from the domestic regulator, Overseas regulators have already granted their approvals,” they added.

BY JEONG JIN-HO, SHIN HA-NEE [shin.hanee@joongang.co.kr]