Mega merger of shipbuilders

Creating global mammoth to reshape industrial landscape

A Planned merger of two of the country's major shipbuilders is expected to change the landscape of the global shipbuilding industry. The tie-up will create the world's largest shipbuilding group, which will control one-fifth of market.

The nation's No. 1 shipbuilder, Hyundai Heavy Industries, signed a deal with the state-run Korea Development Bank (KDB), Freday, to buy Daewoo Shipbuilding & Marine Engineering. Under the deal, the KDB will sell a 55.7 percent stake in Daewoo to Hyundai. The bank will become the second largest shareholder with an 18 percent stake in the merged entity.

First, the KDB's disposal of its controlling share means the privatization of Daewoo. The development bank has injected up to 10 trillion won (about $9 billion) into Daewoo since 2001, when the troubled shipbuilder was subject to a debt rescheduling program.

Second, the marriage of Hyundai and Daewoo will reshape the nation's shipbuilding industry. The so-called "Big-3" system will be transformed into a "Big-2" system with Hyundai Heavy and Samsung Heavy Industries.

Third, the mega merger will create a global giant with a combined order backlog representing 21.2 percent of the total global backlog.

Most important is that the merger is designed to improve the competitiveness of Korea's shipbuilding sector. It is also aimed at offering stable jobs and boosting the regional and national economy.

The Hyundai-Daewoo deal comes at a time when restructuring in the shipbuilding industry is imperative. Thus, the merger is inevitable. The industry, which had long led the nation's economic growth and job creation, now faces difficulties due to falling competitiveness.

Now the question is how to make the merger a success. The KDB, Hyundai and Daewoo need to cooperate closely to overcome remaining obstacles. They should make efforts to get regulatory approvals from foreign anti-competition authorities.

The three parties are also required to cope with anticipated opposition from the unions of the two shipyards, fearing potential layoffs. Most of all, the new shipbuilding behemoth should make all-out efforts to develop new technology to become a sustainable leader in the ever more competitive global market.