Hanwha Group’s acquisition of shipbuilder DSME is approved

Hanwha Group has received permission from South Korean regulators to conclude the acquisition of a controlling 49.3% stake in troubled shipbuilder Daewoo Shipbuilding & Marine Engineering (DSME).

The decision came on 27 April. However, the Fair Trade Commission (FTC) decreed a proviso that Hanwha must not discriminate against other rivals in the market.

The FTC commented: ‘We have conducted a comprehensive review of the proposed deal, which involves a vertical merger between companies that hold significant dominance in both the market for vessels and their parts, as there is a risk that the merger could impede competition.’

There will be a three-way shipbuilding rivalry between Hyundai Heavy Industries, Samsung Heavy Industries and Hanwha Group. The latter is already the main or sole supplier for about ten critical subsystems in naval ships – such as radars and navigation systems – but neither DSME nor Hanwha are allowed to supply parts at discriminatory prices.

The above was one of three conditions imposed by the FTC. A second is that they cannot unfairly refuse to supply technical information regarding equipment to rival companies when requested to through the Defense Acquisition Program Administration.

The third condition restricts Hanwha and DSME from providing trade secrets acquired from competitors to their affiliated companies.

The FTC stated, ‘Although the government is the sole buyer in the sector, it is significant that we have applied the necessary measures to avoid limited competition in the bidding process.

To ensure compliance, DSME and Hanwha must submit reports every six months over the coming three years. The watchdog said this period could be extended if market conditions or regulations change.

The takeover agreement is worth some KRW2 trillion ($1.49 billion). Hanwha is acquiring shares held by DSME’s main creditor and largest shareholder, the Korea Development Bank’s (KDB) Bank of Industry. The KDB is left with a 28.2% shareholding stake, but without management rights.

On 26 September 2022, Hanwha announced it had signed a conditional MoU to take a managerial controlling stake in DSME. With no other competitive bidder bettering Hanwha’s offer, the acquisition became official on 16 December 2022.

The formal acquisition process should be completed in May. Previously, regulators in China, the EU, Japan and the UK approved the deal.

In the past five years, DSME received 25.4% of all Republic of Korea Navy surface ship orders, and 97.8% of submarines. However, one setback was an Indonesian deal for three additional submarines falling through.

To acquire DSME, Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners and three affiliates of Hanwha Energy are putting in money.

Last year, as part of major corporate restructuring, Hanwha Defense merged with Hanwha Aerospace, while defence production also transferred to Hanwha Aerospace. This streamlines defence business operations, with Hanwha Aerospace now being the overarching entity.

Hanwha’s goal is to be the ‘Lockheed Martin of South Korea’, and to join the top ten defence companies in the world. This DSME acquisition certainly gives Hanwha a far broader portfolio encompassing the land, air and naval sectors.