Hyundai Heavy Industries (HHI)'s takeover of Daewoo Shipbuilding & Marine Engineering (DSME) hit a snag. The on-site inspection was canceled due to the opposition from DSME's labor union, and a legal battle is expected to take place regarding procedural legitimacy over the physical division of the two local shipbuilders.
According to the shipbuilding industry on June 16, HHI's on-site inspection of DSME's Okpo shipyard failed within the originally agreed deadline. HHI set the period for the on-site inspection from June 3 to 14, but failed to carry out the due diligence due to the opposition from DSME's labor union.
HHI plans to consult with the state-run Korea Development Bank (KDB) later to conduct an on-site inspection until the acquisition of DSME is completed. It says it should check shipyard facilities and equipment through on-site inspections as well as documents.
As a result, HHI is expected to focus on reviewing future business combinations. Starting with submitting a combined declaration to the nation's Fair Trade Commission (FTC) early next month, the company reportedly plans to report it to its overseas rival authorities such as the European Union, Japan and China.
Initially, the review of the corporate combination is considered the biggest hurdle to the acquisition of DSME. Backlashes from Europe, Japan and China that have major ship owners are expected.
If HHI and DSME are combined, the combined share of all ships accounted for only 21 percent based on last year's order backlog, but exceeds 50 percent in terms of LNG carriers.
The aftereffects of the physical division should also be addressed. HHI held an extraordinary shareholders' meeting on March 31 and passed a bill to split it into a mid-term holding company, Korea Shipbuilding & Offshore Engineering (KSOE) , and a new business company, Hyundai Heavy Industries.
The company announced the change of the meeting's venue to Ulsan National University Gymnasium at 10:30 a.m. and held the general meeting at 11:10 a.m. as the meeting's original place, Hanmaum Hall in Dong-gu, Ulsan, was unable to hold the general meeting due to the occupation of the union.
Regarding the change, the union insists on nullifying the shareholders` meeting, saying that there was no sufficient advance notice and that it was impossible to move to the changed venue. Accordingly, the labor union plans to file a lawsuit claiming the nullification of the physical division made at the shareholders' meeting on June 17.