[Initial Insight] Sailing After 21 Years... Daewoo Shipbuilding's Uncharted Path

The corporate merger between Hanwha Group and Daewoo Shipbuilding & Marine Engineering (DSME) has become visible. Hanwha plans to complete the merger and acquisition (M&A) by next month after obtaining government approval for the merger next week and going through procedures such as stock acquisition and shareholder meetings. With this, DSME stands at the starting point of transforming into a private company for the first time in 21 years since it came under the Korea Development Bank (KDB) Industrial Bank in 2002.

The path to the starting line was not smooth. Let us briefly look back on the arduous process. In 1999, following the collapse of the Daewoo Group, Daewoo Shipbuilding & Engineering was separated, and at that time DSME began to stand on its own. It graduated from workout (corporate financial restructuring) in 2001 and changed its name to the current Daewoo Shipbuilding & Marine Engineering the following year, seeking transformation.

In the mid-2000s, the shipbuilding industry entered a boom period, offering some relief, but it did not last long. After the inauguration of the Lee Myung-bak administration in 2008, the Industrial Bank began actively promoting privatization, accelerating the sale of DSME. At that time, POSCO, GS, Doosan, Hyundai Heavy Industries, and Hanwha all entered the bidding for DSME, and after fierce competition, Hanwha was selected as the preferred negotiator. However, the acquisition fell through due to the aftermath of the financial crisis.

Adding insult to injury, in 2015, it was revealed that DSME had engaged in accounting fraud amounting to trillions of won, causing the company’s fortunes to collapse. The public funds injected into DSME to restore it to normalcy amounted to a staggering 7.1 trillion won.

Privatization of DSME resurfaced in 2018. The Industrial Bank announced that either Hyundai Heavy Industries Group or Samsung Heavy Industries would acquire DSME to reorganize the domestic shipbuilding industry from the existing 'Big 3' system to a 'Big 2' system. The following year, Hyundai Heavy Industries Group was confirmed as the acquisition candidate and promptly signed a main contract with the Industrial Bank. However, the European Union (EU) blocked the merger on the grounds of monopoly in the liquefied natural gas (LNG) carrier market, causing the 'search for an owner' to fail again.

During this process, DSME had six different CEOs, and employees who joined in 2002 have now risen to managerial positions. It was a long and winding road. Meanwhile, DSME employees had to endure hardship through voluntary retirement for financial restructuring or wage freezes amid job insecurity.

Also, the internal subcontractor issue that led to a dock strike lasting over 50 days last year is part of this continuum. Subcontractors and their employees continue to suffer from low wages and wage arrears. It is now time to promptly find a solution.

Not only DSME members but many citizens are placing their hopes on the changes this merger will bring. The change of affiliation from the umbrella of a policy bank to Hanwha Group carries great significance. All executives and employees now need to recognize and change their attitude, acknowledging that they have become a private company. They must abandon the lukewarm perception that someone, somewhere will help even if performance is poor.

Moreover, the current shipbuilding industry situation is not easy. DSME has suffered from poor performance for two consecutive years due to competition with Chinese companies and entering a downward cycle in the market.

HD Hyundai and Samsung Heavy Industries will also need to adapt to the new changes. They must engage in fair competition amid low-price orders from Chinese companies. It is positive that they hold the lead in the LNG ship market, which has recently emerged as an eco-friendly vessel, but they cannot afford to be complacent.

Hanwha’s role is also important. After completing this acquisition, it must accelerate the acquisition of HSD Engine. It is expected to build a value chain in the shipbuilding sector from ship construction to engine manufacturing and leap forward as an integrated defense company covering land, sea, and air. To achieve a chemical fusion with DSME, Hanwha’s unique organizational culture of 'trust and loyalty' should be leveraged to create synergy.

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