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World's top two shipbuilders to go through merger

Posted February. 01, 2019 07:42,   

Updated February. 01, 2019 07:42


South Korean shipbuilder Hyundai Heavy Industries is pushing forward to acquire Daewoo Shipbuilding & Marine Engineering. Korea Development Bank, the largest shareholder of the two shipbuilders, signed a conditional MOU for merger and acquisition on Thursday. Once Korea's top two shipbuilders are merged, a super-sized global No. 1 shipbuilding company will be created.

A structural reform in the shipbuilding industry – a shift from the “Big 3” regime of Hyundai Heavy Industries, Daewoo Shipbuilding and Samsung Heavy Industries to “Big 2” regime – will start in earnest as a result of this big deal. Daewoo Shipbuilding, which has been under the management of Korea Development Bank since 2000 as a result of Daewoo Group’s dissolution, is starting to become privatized in 19 years to find a new owner. This M&A is especially more meaningful in that a private sector led industry restructuring has initiated, slipping away from the government-led restructuring that was carried out with taxpayer’s money.

If the acquisition is accomplished, the problem of low-price contracts and dumping war, which was pointed out as chronic problems in the shipbuilding industry of Korea, is expected to be resolved. It is assessed that cost reduction effect will be maximized when the economy of scale is realized along with Korea’s leading technology. There is high expectation that this will become an opportunity to outpace second movers such as China and Singapore by large. Objections from the powerful labor union of both companies, however, appears to be obvious. It is due to the concern that human resources restructuring is inevitable as the major business of the two companies overlap. The labor union of Daewoo Shipbuilding immediately demanded to withdraw the sale, adding that they will engage in fierce struggle if their demand is not met.

The merger of the top two shipbuilding companies needs to resolve the issue of global quasi monopoly issue by passing the corporate integration examination of home and abroad, including Europe and the U.S. Also, there is still the problem of recovering government fund worth 13 trillion won that was invested directly and indirectly to Daewoo Shipbuilding up until now. The restructuring led by the government used to get lost in the middle, causing many problems. The reorganization led by the private sector should not follow this path. This reporter hopes that this merger and acquisition will be able to overcome many difficulties it may face through responsible management of the private shareholders until the acquisition is completed, and prepares a stepping stone to rebuild "shipbuilding powerhouse Korea."