Shareholders of Hyundai Heavy Industries, the country's largest shipbuilder, have taken the first step toward realizing an agreed takeover with the No. 2 local shipbuilder. On Friday, they approved the company's split-up plan to pave the way for the acquisition. Yet Hyundai faces a strong backlash from its union, which has opposed the plan for fear of mass layoffs.
The approval came in defiance of the union after Hyundai Heavy signed a deal worth 2 trillion won ($1.6 billion) with the state-run Korea Development Bank (KDB) in March to acquire Daewoo Shipbuilding & Marine Engineering. KDB holds a 55.7 percent stake in Daewoo.
The deal is aimed not only at saving the troubled Daewoo, but also regaining the competitiveness of local shipbuilders. The deal will also reshape the landscape of the global shipbuilding industry. The tie-up of Korea's “Big 2” will create a shipbuilding behemoth with a 20 percent world market share.
Under the split-up plan, Korea Shipbuilding & Offshore Engineering (KSOE) will be set up under the holding firm Hyundai Heavy Industries Holdings. KSOE will be in charge of research and development as well as investment. Daewoo Shipbuilding will be placed under KSOE, which will also control a reorganized Hyundai Heavy to handle shipbuilding and offshore businesses.
The shipbuilding group explains that the split and reorganization is designed to prevent redundancies, save costs and improve productivity. However, unionized workers are concerned about the group's plan to allocate most assets to KSOE and leave most liabilities to the reorganized Hyundai Heavy. They fear that the split may be a prelude to restructuring, large-scale layoffs and pay cuts.
That is why the unionists went on strike and staged a sit-in at the venue of the shareholders' meeting to block the passage of the split-up plan. The company barely held the meeting to get the approval by changing the venue at the last moment. The union has now threatened to take legal action to nullify the approval. It claimed the meeting did not follow the appropriate procedures.
The group's other plan to locate KSOE headquarters in Seoul, instead of the shipbuilding city of Ulsan, has also made matters worse. The Ulsan mayor and the city council chief had their heads shaved in protest. They and residents are worried that the plan may hurt the regional economy.
It is disappointing that the company made little effort to have a dialogue with the union to seek its cooperation. It is somewhat belated, but management should go all-out to persuade the protesting workers to accept the split-up plan by ensuring job security and presenting a vision for the merged entity. It is also necessary to seek the understanding of Ulsan residents about the KSOE relocation.
The company's unilateral push for the split and acquisition might backfire without union support. Hyundai should realize that workers' help is badly needed to overcome some obstacles to the takeover of Daewoo. If the conflict with labor continues, the firm may find it harder to get approval for the tie-up from the Fair Trade Commission.
Besides, Hyundai faces a greater challenge: how to get the go-ahead for the merger from antitrust regulators in about 10 countries, including the U.S., China and Japan, as well as the European Union. It remains to be seen whether the company can clear all the hurdles down the road to make the tie-up a success.