FTC conditionally approves Hanwha acquisition of DSME

Korea's antitrust regulator approved the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) on the condition that the parties won’t engage in anticompetitive behavior in military shipbuilding.

Fair Trade Commission chief Han Ki-jeong briefs Hanwha-DSME acquisition deal at a press conference in Sejong government complex on Thursday. [YONHAP]

Korea's antitrust regulator approved the acquisition of Daewoo Shipbuilding & Marine Engineering (DSME) on the condition that the parties won’t engage in anticompetitive behavior in military shipbuilding.

The Fair Trade Commission (FTC) finalized its months-long review on Thursday, becoming the last regulator to give a green light — albeit subject to remedies — to the $1.5 billion proposal after approvals in seven jurisdictions.

By getting a nod from all necessary antitrust authorities, the takeover deal is expected to be completed as early as next month.

The acquisition involves five Hanwha companies — Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners, Hanwha Energy Singapore and Hanwha Convergence — acquiring a 49.3 percent stake in DSME. The FTC has been scrutinizing the acquisition due to concerns about potential competition restrictions as some of the acquiring companies are parts suppliers to military shipbuilders like DSME.

To address these concerns, the FTC instituted remedies designed to prohibit Hanwha Aerospace, Hanwha Systems and DSME from engaging in unfair practices.

The regulator ordered the combined units not to be involved in discriminatory pricing for equipment used in military ships. They are also required to equally provide product information to all parities including competitors of the acquiring company. They are also banned from transferring trade secrets of competing companies with each other.

“It is meaningful the corrective orders were applied to resolve concerns about potential competition restrictions even if the government is the sole buyer in the sector,” the FTC Chairman Han Ki-jeong said at the government complex in Sejong on Thursday.

The defense and shipbuilding companies must comply with these corrective measures for three years and report their progress to the FTC every six months. The FTC may extend the order beyond the initial period if market conditions or regulations change.

Hanwha said it accepts the FTC's decision.

“Despite the management restrictions imposed by the conditional approval, we’ve decided to accept the authorities’ decision from the perspective of strengthening national competitiveness by swiftly normalizing the management of DSME, whose earnings have worsened, and fostering a key industry.” Hanwha said in a statement.

Hanwha said it will take part in DSME’s capital raising and appoint board members through a shareholder meeting in May.

DSME is raising capital by issuing shares worth 2 trillion won (about $1.5 billion).

This is the first time DSME has been in private hands since a government-led debt workout in 2001.

DSME leads the country’s submarine market, accounting for 97.8 percent of orders over the past five years. It also accounted for 25.4 percent of military vessel orders over that period.

It was unprecedented for the FTC to give conditional approval to a corporate merger in the defense sector.

BY SEO JI-EUN, JIN MIN-JI [seo.jieun1@joongang.co.kr]