Hyundai Heavy Industries agrees to take over DSME

Hyundai Heavy Industries (HHI) has signed a preliminary deal to take over rival shipyard Daewoo Shipbuilding & Marine Engineering, the two South Korean corporations have announced.

Once finalized the acquisition will merge the country’s two biggest naval shipyards with estimated combined defence-related revenues of nearly USD2 billion.

The transaction is framed by a memorandum of understanding (MOU) signed on 31 January by HHI and DSME’s majority shareholder, the state-run Korea Development Bank (KDB), which holds a 55.7% stake in the company. The deal is expected to be finalised within the next six months and could reach a value of more than KRW2 trillion (USD1.8 billion). However, the scope of HHI’s investment in DSME has not yet been agreed.

South Korean shipbuilder DSME launched the first KSS-III submarine for the Republic of Korea Navy in September 2018. DSME's major shareholder, the Korea Development Bank, agreed on 31 January to sell the company to rival shipyard Hyundai Heavy Industries. (RoKN)

“We have entered into an agreement [with the] Korea Development Bank,” said HHI in a stock exchange filing. “The details of the rights offerings are not set forth in the agreement [and] will be determined at the conclusion of the contract in accordance with the future proceedings.” The company said its rationale behind the acquisition is to “strengthen the competitiveness of [its] shipbuilding business”.

Under the terms of the MOU, the KDB will transfer all or some of its DSME shares to HHI and acquire KRW1.5 trillion worth of HHI stock. As part of the deal, the KDB said it will also consider providing an additional KRW1 trillion in financial assistance to DSME. Following the acquisition, HHI said it will split into two entities, with one listed on the Korean Exchange.