HHI Group Inks Deal to Acquire DSME

Hyundai Heavy Industries (HHI) Group and Korea Development Bank (KDB) signed on Friday a definitive agreement to acquire Daewoo Shipbuilding & Marine Engineering (DSME), in the presence of Kwon Oh-gap, Vice Chairman & CEO of HHI Holdings; Ka Sam-hyun, President & CEO of HHI; and Lee Dong-gull, Chairman & CEO of KDB.

Under this definitive agreement that builds on the heads of agreement signed between HHI and KDB on January 31, 2019, KDB will make a contribution-in-kind to Korea Shipbuilding & Offshore Engineering (KSOE, named tentatively), to be established as a sub-holding company spun off from HHI to control the group’s shipbuilding companies including HHI, by transferring its shares in DSME in return for an equity stake in KSOE.
The definitive agreement states, among others, that HHI and KDB will perform due diligence of DSME and HHI, respectively; the two parties will exercise their best efforts to complete the transaction unless the due diligence reveals a fact or matter that would have a material adverse effect on either of the target companies; and the parties will commit no unlawful act that would adversely affect the standalone business operations of HHI and DSME until the acquisition is officially authorized by the government authorities.

At the signing ceremony, the two parties to the definitive agreement also announced a joint statement for co-prosperity of stakeholders. Among the key declarations were employment security of DSME workers and continued relationships with DSME’s current business partners. In this statement, HHI and KDB said they are entering into this agreement “with an ultimate aim of stimulating employment and revitalizing the local economy,” pledging to maintain the current management structure of DSME, keep employment of DSME’s workers secure and continue the business relationships with the existing subcontractors and suppliers of DSME.

Kwon Oh-gap, Vice Chairman & CEO of HHI Holdings, said at the signing ceremony, “the decision to welcome DSME to the HHI Group is deeply rooted in our belief that it is a mission given to our group, as the trailblazer and long-standing leader of Korea’s shipbuilding sector, to take the initiative in elevating the industry to new heights.”

He adds, “HHI Group’s post-acquisition strategy is, to have its four shipyards, which would now include DSME as the latest addition to the group’s portfolio of shipbuilding business, focused on design, manufacturing and sales activities, which will be controlled by KSOE specialized in R&D and engineering, with a view to taking HHI Group’s competitiveness to the next level.”

A Joint Statement from the two parties is as follows:

Hyundai Heavy Industries (HHI) and Korea Development Bank (KDB) today entered into a definitive agreement on HHI’s acquisition of Daewoo Shipbuilding & Marine Engineering (DSME). The idea behind this move is to aid the rebound of the shipbuilding sector with an ultimate aim of stimulating employment and revitalizing the local economy.

HHI and KDB have reached the following consensus, in pursuit of a shared vision of building a healthy ecosystem of the shipbuilding industry at the expense of no parties involved in this acquisition.

First, DSME’s management structure will remain unchanged.

After the acquisition, its current management structure will remain in place for the time being. In order to maximize synergies that this acquisition can deliver, however, we are committed to cooperative organization of basic research and efficient allocation of management resources to enhance the levels of technological and competitive advantages to ensure DSME operates at full capacity. HHI Group will go to any lengths to help DSME rise to new heights in the global shipbuilding industry, and KDB will spare no effort to provide necessary support along the way.

Second, employment security of DSME’s workers will remain in effect.

The executives and employees of DSME are valuable assets to this nation, the world’s no. 1 shipbuilding powerhouse. We will help them make the most of their know-how, expertise and pride to contribute to our industry’s turnaround. We offer to ensure DSME workers’ employment security for a period of time as long as productivity remains unaffected, under the same terms and conditions applied to the workers of HHI Group. We also count on our soon-to-be co-workers at DSME to make further endeavors to enhance productivity.

Third, DSME’s relationships with the existing business partners will endure.

Component makers, equipment suppliers and subcontractors are a critical pillar of the local economy. In full recognition of the indispensable role we need them to play to turn the shipbuilding industry around, we will ensure to maintain DSME’s current business relationships with makers, suppliers and subcontractors with competitive advantages. Taking a step forward, we will also work towards creating a sustainable communication channel with our business partners in the local community for our closer ties with them, in the quest for co-prosperity.

Fourth, we will form a joint consultative body to collect and share opinions from each stakeholder.

HHI Group and KDB will form a joint consultative body with Korea Export Bank, where we have shared responsibilities to answer and find solutions to various issues and claims from stakeholders that may happen in the way to the final stage of the agreement.

Fifth, Korea Shipbuilding Industry Development Commission (named tentatively), consisting of industry, government and academia experts, will be formed to restore the shipbuilding industry’s ecosystem.

Recent years witnessed parts and equipment suppliers and other business partners in this industry, along with small and mid-sized shipyards, hit hard by the recession. Restoring the shipbuilding industry’s ecosystem is an urgent task that we cannot afford to linger over, not just to breathe new life into our industry but to revitalize the local economy. Korea Shipbuilding Industry Development Commission will commit itself to shaping a healthier and more efficient environment for harmonious existence of all players in our industry.

Sixth, we will fast-track procedures required to complete the transaction and minimize any possible vacuum in management that could result.
Recently the global shipbuilding market conditions are improving. There won’t be any better time for HHI and DSME, the two leading shipbuilders of the nation, to achieve the shared aim of taking the global shipbuilding sector to the next level.

We count on your continued support and encouragement to help us make this contemplated acquisition a success and reshape the shipbuilding business into a key economic growth driver that brings new hope and pride not just to the industry players but to the entire citizens of Korea.

Thank you.