Allen & Gledhill secures unconditional Phase 2 clearance of proposed merger of two of the world’s largest shipbuilders

9 September 2020

On 25 August 2020, the Competition and Consumer Commission of Singapore (“CCCS”) announced that it has cleared the proposed merger between Korea Shipbuilding & Offshore Engineering Co., Ltd (“KSOE”) and Daewoo Shipbuilding & Marine Engineering Co., Ltd. (collectively, “Parties”) (“Proposed Transaction”). CCCS’s clearance follows an in-depth Phase 2 review where CCCS assessed whether the Proposed Transaction would substantially lessen competition in any relevant market. The Parties overlap in the global supply of commercial vessels, including oil tankers, containerships, liquefied natural gas (“LNG”) carriers and liquefied petroleum gas (“LPG”) carriers. As part of the review, CCCS assessed the closeness of competition between the Parties and also whether there would be sufficient competitive constraint from alternative suppliers post Proposed Transaction.

By way of background, on 12 September 2019, KSOE notified CCCS for a decision as to whether the Proposed Transaction would infringe section 54 of the Competition Act (“Act”). Section 54 of the Act prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore. On 23 January 2020, CCCS proceeded with an in-depth Phase 2 review when it was unable to conclude that the Proposed Transaction would not result in a substantial lessening of competition after completing its preliminary review.

The Allen & Gledhill Competition & Antitrust Practice acted for the applicant, KSOE.

Relevant markets

In assessing the Proposed Transaction, CCCS considered the relevant markets to be the global supply of the following commercial vessels to customers worldwide:

• Large oil tankers 
• Large containerships
• Large LNG carriers
• Large LPG carriers 

(collectively, “relevant markets”)

Competition assessment of the relevant markets

Set out below is a summary of CCCS’s findings:

• Barriers to entry and expansion are generally high, particularly for new suppliers, given the significant capital outlay and resources required. Within vessel types, barriers to entry and expansion are also higher for the construction of larger vessel classes; 
• There is insufficient evidence to conclude that customers (large shipping companies purchasing commercial vessels from multiple suppliers) have sufficient buyer power to effectively constrain the merged entity from exercising its market power; 
• Although the Parties are close competitors to each other in the relevant markets, there are sufficient viable alternative suppliers with sufficient excess capacities to satisfy a significant portion of any demand that switches away from the merged entity in the event of a price increase by the merged entity; 
• The Parties’ historical bidding data suggests that there are other close competitors that constrain the Parties’ bid prices; and 
• While market concentrations in the relevant markets will be high post-merger, the evidence indicates that the Proposed Transaction will not result in coordination or collusion on prices. Shipbuilders tend to have private negotiations with customers, limiting price transparency. As customers perceive differences in quality and experience of shipbuilders, shipbuilders may also find it difficult to coordinate on prices.

CCCS’s conclusion is that the Proposed Transaction, if carried into effect, will not lead to a substantial lessening of competition within the relevant markets in Singapore and, accordingly, will not infringe section 54 of the Act.

Reference materials

The following materials are available on the CCCS website www.cccs.gov.sg:

• Media release 
• Public register

CCCS’s Grounds of Decision will be made available in due course.