Korea Development Bank will transfer its Daewoo stocks to a subholding company to be established by Hyundai Heavy in return for equity stake in the company.
Hyundai Heavy Industries (HHI) on Friday signed a definitive agreement with state-run Korea Development Bank (KDB) to buy Daewoo Shipbuilding and Marine Engineering (DSME), which would result in the merger of South Korea’s two largest shipyards if the deal goes through.
In January, KDB, which owns a 55 percent stake in DSME, signed a preliminary agreement to sell its stake to HHI, the world’s largest shipyard, but remained open to hearing an offer from Samsung Heavy as well. Samsung Heavy, however, turned down an offer to bid, reported Korea’s Yonhap news agency.
Under the agreement, estimated at more than 2 trillion won ($1.76 billion), KDB will transfer its DMSE stocks to a subholding company to be established by HHI to control the group’s shipbuilding companies, which is tentatively called Korea Shipbuilding and Offshore Engineering (KSOE), in return for equity stake in KSOE.
If the takeover is successful, Hyundai Heavies Industries Group will have four affiliates: Hyundai Heavy, Hyundai Samho Heavy Industries, Hyundai Mipo Dockyard and Daewoo Shipbuilding.
Kwon Oh-Gap, vice chairman and CEO of HHI Holdings, said, “HHI Group’s post-acquisition strategy is to have its four shipyards, which would now include DSME as the latest addition to the group’s portfolio of shipbuilding business, focused on design, manufacturing and sales activities, which will be controlled by KSOE specialized in R&D and engineering, with a view to taking HHI Group’s competitiveness to the next level.”
In a joint statement, the two sides said DMSE’s management structure would remain unchanged, ensured employment security for DSME workers and said DSME’s relationships with existing business partners will continue.
Hyundai Heavy and KDB said they will form a joint consultation group to collect stakeholders’ opinions and commission, tentatively named the Korea Shipbuilding Industry Development Commission, will be formed consisting of industry, government and academia experts to restore the shipbuilding industry’s ecosystem.
They also said they will “fast-track procedures required to complete the transaction and minimize any possible vacuum in management that could result.”
Unionized workers of Hyundai Heavy and DSME who protested the deal clashed with police as they tried to enter the building and interrupt the signing ceremony, according to Korean Broadcasting System.
Yonhap news agency reported Hyundai Heavy had an order backlog of 11.14 million compensated gross tons (CGT) as of last year and DMSE has a backlog of 5.84 million CGTs. Their combined backlog made up 21.2 percent of the world’s total amount.