The Competition and Consumer Commission of Singapore (“CCCSâ€) has cleared the proposed merger between Korea Shipbuilding (“KSOEâ€) and Daewoo Shipbuilding (“DSMEâ€).
Following its assessment, CCCS has concluded that the Proposed Transaction, if carried into effect, will not infringe the section 54 prohibition of the Competition Act (Cap. 50B) (the “Actâ€).[break]
CCCS received an application from KSOE on 12 September 2019 for a decision on whether the Proposed Transaction would infringe section 54 of the Act, which prohibits mergers that have resulted, or may be expected to result, in a substantial lessening of competition within any market in Singapore.
As CCCS was unable to conclude that the Proposed Transaction will not result in a substantial lessening of competition after completing its preliminary review, CCCS proceeded with an in-depth review on 23 January 2020.
In its in-depth review, CCCS assessed whether the Proposed Transaction would substantially lessen competition, to the detriment of customers in Singapore. As part of its review, CCCS assessed whether the Parties are close competitors and also whether alternative suppliers will be sufficiently strong competitors to the merged entity.
KSOE is a Korean company primarily active in shipbuilding, and which also supplies industrial products for the electricity and construction sectors and robotic technologies. KSOE, together with its affiliates, produces a range of commercial vessels including oil tankers, containerships, liquefied natural gas (“LNGâ€) carriers and liquefied petroleum gas (“LPGâ€) carriers.
KSOE operates in Singapore as a foreign company registered in Singapore, via an overseas branch office. The Singapore branch of KSOE operates as a sales office.
DSME is a Korean company primarily active in shipbuilding. It produces a range of commercial vessels and also builds offshore facilities for use in the oil and gas sector.
DSME operates in Singapore as a foreign company registered in Singapore, via an overseas branch office. Its Singapore office mainly focuses on marketing activities supporting DSME’s businesses.
The Parties overlap in the global supply of commercial vessels[4], including oil tankers, containerships, LNG carriers and LPG carriers. CCCS’s assessment focused on the largest vessel classes within each of the four vessel types, namely large oil tankers (i.e. Ultra Large (UL)/Very Large Crude Carriers (VLCC) 200,000+ deadweight tonnage (DWT)), large containerships (i.e. Post-Panamax 15,000+ twenty-foot equivalent unit (TEU)), large LNG carriers (i.e. LNG carriers 40,000+ cubic metres (cu.m.)) and large LPG carriers (i.e. LPG carriers 60,000+ cu.m.).
As part of its assessment, CCCS conducted two public consultations[5] and contacted 157 stakeholders including competitors and customers. CCCS also engaged various government agencies to gather relevant information necessary for CCCS’s assessment of the Proposed Transaction.
CCCS found that:
a. Barriers to entry and expansion are generally high, particularly for new suppliers, given the significant capital outlay and resources required. Feedback from third parties indicated that more sophisticated vessels such as LNG carriers and LPG carriers require higher level of technical expertise and capital investment. Within vessel types, barriers to entry and expansion are also higher for the construction of larger vessel classes due to physical constraints in dock size and equipment required;
b. Although customers are large shipping companies that purchase commercial vessels from multiple suppliers, there is insufficient evidence to conclude that customers have buyer power to constrain the merged entity from exercising its market power;
c. The Parties are close competitors to each other in the Relevant Markets, and market share figures indicate that the Parties are two of the main suppliers globally for UL/VLCC 200,000+ DWT and LNG carriers 40,000+ cu.m.;
d. However, there are viable alternative suppliers to the Parties in the Relevant Markets following the Proposed Transaction. This finding is supported by market feedback and CCCS’s quantitative assessment on the closeness of rivalry between shipbuilders;
e. These alternative suppliers have 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;
f. An assessment of the Parties’ historical bidding data does not indicate that the Parties’ bid prices are systematically higher for contracts where they do not compete with each other.[7] This suggests that there are other close competitors that constrain the Parties’ bid prices; and
g. While market concentrations in the Relevant Markets will be high post-merger, the evidence does not indicate that the Proposed Transaction will result in coordination or collusion on prices as shipbuilders tend to have private negotiations with customers, which limit price transparency. Shipbuilders may also find it difficult to coordinate on prices as customers perceive differences in quality and experience of shipbuilders.
After evaluating all the evidence available, CCCS assessed that the Proposed Transaction, if carried into effect, will not lead to a substantial lessening of competition in Singapore. ■