Hanwha, KDB to ink main acquisition contract for DSME this week

By Kim Hyun-bin

Hanwha Group will sign the main contract to acquire Daewoo Shipbuilding & Marine Engineering (DSME) this week, according to industry officials, Sunday.

If the acquisition process is completed in the first half of next year as scheduled, the reorganization of Hanwha Group's business structure centering on the two pillars of defense and eco-friendly energy is expected to be completed.

Hanwha Group and Korea Development Bank (KDB) plan to sign the main contract related to the DSME acquisition this week. After going through domestic and international approval and licensing procedures, including business combination review by the Fair Trade Commission (FTC) and approval by overseas competition authorities, DSME will carry out a third-party allocation capital increase to Hanwha and the sale process will be completed.

On Sept. 26, Hanwha Group signed a conditional investment agreement to acquire a 49.3 percent stake in management rights by participating in DSME's paid-in capital increase of 2 trillion won ($1.53 billion).

Accordingly, Hanwha started conducting due diligence work in mid-October. On Nov. 16, the company also conducted an on-site inspection of Okpo Shipyard on Geoje Island in South Gyeongsang Province, a key production facility for DSME.

Initially, the union tried to block the on-site due diligence, but on Nov. 15, the day before it was set to begin, Hanwha Energy CEO Chung In-seop, who is in charge of the takeover, met with the union and promised to guarantee participation in the branch and their job security when the main contract was signed.

The deadline for signing this contract is Dec. 19. However, the deadline may be extended by agreement of both parties. Hanwha Aerospace, Hanwha Systems, Hanwha Impact Partners and three Hanwha Energy subsidiaries are participating in the paid-in capital increase.

Previously, Hanwha Group tried to acquire DSME in 2008, but failed to raise funds in the aftermath of the global financial crisis and gave up the acquisition. At the time, the acquisition price was 6 trillion won.

There was also a controversy over the low sale price, which KDB refuted, saying, "It is not a sale of stocks owned by Hanwha, but an expansion of new capital of 2 trillion won for DSME."

Hanwha Group plans to complete the DSME acquisition in the first half of next year and seek synergy in the military special ship business such as submarines.

However, Daewoo's normalization is a task for Hanwha Group to solve.

According to DSME's quarterly report, out of total assets of 12.4992 trillion won, liabilities were 11.605 trillion won as of the end of the third quarter of this year. In the third quarter of this year alone, it recorded an operating loss of 627.8 billion won in the aftermath of strikes at subcontractors, widening the deficit.