Repeated Big Deal Failures and Delays... Growing Concerns at San-eun

EU rejects Hyundai Heavy Industries-Daewoo Shipbuilding merger... Aviation big deal still faces overseas regulatory hurdles

[Asia Economy Reporter Yoo Je-hoon] KDB Industrial Bank is facing deep concerns as big deals in the shipbuilding and aviation industries have been repeatedly canceled or delayed.

According to industry sources on the 1st, the European Union (EU) competition authorities disapproved Hyundai Heavy Industries' acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) on the 13th of last month (local time). As a result, the shipbuilding big deal that had been ongoing for three years since 2019 has returned to square one.

This failure of the corporate merger is an embarrassing outcome for KDB Industrial Bank, which has been leading the big deal. At a recent press conference, Lee Dong-gull, chairman of KDB Industrial Bank, expressed, "This disapproval decision is based on the EU's thorough domestic self-interest," adding, "It does not seem like a fair judgment, so I feel sorry to the public but at the same time very regretful."

For KDB Industrial Bank, DSME has been a headache unresolved for 22 years since 2000. Despite effectively providing public funds twice over the past two decades, business normalization has been difficult, and attempts to sell the company have repeatedly failed. The bank plans to decide on a 'Plan B' after reviewing the management consulting results expected around March, but it intends to continue pursuing the privatization of DSME.

However, finding a new owner is also expected to be a difficult path. Due to the EU's recent decision, a merger within the same industry (Samsung Heavy Industries) is impossible, and overseas sales are also impossible because DSME operates in the defense industry sector. Unlike the mid-2010s, the shipbuilding industry has entered a recovery phase following the COVID-19 pandemic, which is a positive factor, but with debts exceeding 7 trillion won and the need for new investments, many expect it will not be easy to find a company willing to take over.

Chairman Lee also stated, "Considering the potential insolvency and scale of DSME, there are few domestic companies that can acquire existing shares and inject new funds," adding, "Various options can be considered, but rather than selling existing shares, we will promote resale through new share acquisition that can improve the financial structure by bringing in new money."

Another big deal that KDB Industrial Bank is pushing forward, Korean Air's acquisition of Asiana Airlines, is also not progressing quickly. Korean Air filed a corporate merger notification with the Fair Trade Commission (FTC) in November 2020, but the FTC's decision has been delayed for over a year due to monopoly concerns. The FTC settled on a 'conditional approval' in its review report at the end of last year and plans to finalize this through a plenary meeting next week, but the hurdle of competition authorities in major overseas countries remains.

The major countries currently reviewing the case include the United States, EU, China, Japan, the United Kingdom, Singapore, and Australia?seven countries in total. If even one of these competition authorities issues a disapproval decision, the aviation big deal will inevitably collapse. Given that the recent shipbuilding big deal was canceled due to opposition from the EU competition authorities, concerns about this remain significant.

However, KDB Industrial Bank believes the possibility of disapproval in the aviation industry is low due to its characteristics. Chairman Lee said, "Unlike the shipbuilding industry, 90% of the customers in the aviation industry are Korean nationals, so why would the EU oppose it?" He pointed out, "Especially since the global aviation industry has received massive public funds after COVID-19, if the EU intends to oppose, they should also recover the public funds invested in their domestic companies and let their national carriers go bankrupt. They have invested tens of trillions of won to maintain their national airlines, so how can they oppose our case?"

He continued, "This is an issue that can be sufficiently persuaded diplomatically," and urged, "Where else is there a case where the government sits idle like ours during overseas corporate mergers? Cooperation at the whole-government level, including the FTC and the Ministry of Foreign Affairs, is urgently needed."

This content was produced with the assistance of AI translation services.