The EU on Thursday vetoed the merger of two South Korean ship-making giants over concerns the deal would restrict the supply of large liquefied gas carriers, posing a threat to Europe’s energy security.
The rejection by Europe, a huge market for the South Korean shipyards, came as energy prices remain high and the EU is scrambling to diversify its fossil fuel supply away from Russia and to greener alternatives than coal.
The takeover of Daewoo Shipbuilding & Marine Engineering by rival Hyundai Heavy Industries Holdings, the European Commission said, “would have created a dominant position by the new merged company and reduced competition in the worldwide market for LNG carriers”.
The veto comes two years after Brussels stopped India’s Tata Steel and Germany’s Thyssenkrupp from merging, and three years after it blocked the merger of the train-making businesses of Siemens and Alstom, angering France and Germany.
The EU has the power to vet and reject mergers of any companies, even non-European, that have a decisive impact on its vast market of 450 million people.
“Given the evidence of negative effects of the merger (and) the absence of remedies, the Commission decided to block the merger,” said EU competition chief Margrethe Vestager at a news briefing.
The EU found that the merged entities would create a group controlling nearly two-thirds of the global market of LNG cargo ships that carry super-chilled liquid gas.
Hyundai called the commission’s conclusion unreasonable and disappointing, South Korean news agency Yonhap reported.
The builder pointed out that the commission had only taken issue with the LNG vessel market and that it reserved the right to fight the veto in EU court.
– ‘Few alternatives’ –
“The Commission’s use of the market share as evaluation criteria has no probative value as the market share itself is not a proper indicator of market power in the shipbuilding industry,” HHIH said in a statement.
LNG ships are the only sector that the EU took issue with in terms of dominant position, HHIH said.
“European customers would be left with few alternatives to the merged entity, only a handful of competitors would remain in the market,” Vestager warned.
“It does not matter where the merging firms are located. What matters is whether they compete for demand in Europe,” she said.
The former Danish minister said that Europeans counted for half of the total demand for the construction of LNG vessels, which had ballooned to 40 billion euros over the past five years.
With Europe a major source of clients, the veto by the EU authority poses a major obstacle to the planned tie-up.
The merger of the two of the largest shipyards in the world had been notified to the EU in November 2019, which opened an in-depth investigation the following month.
Vestager admitted that this was an unusually long process and despite efforts, the sides failed to come up with a acceptable solution.
The merger has been accepted in China and Singapore, with decisions still pending in the Japan and South Korea.