Samsung Heavy, Samsung Engineering to merge

Samsung Engineering workers are seen walking pass the window of the firm’s headquarters in southwestern Seoul, Monday. The company will be merged with Samsung Heavy Industries by the end of the year, giving the latter a competitive edge in the international scene. / Yonhap

By Park Jin-hai

Samsung Heavy Industries and Samsung Engineering have agreed to merge by undertaking a share swap, their boards announced Monday.

The move is part of Samsung Group’s restructuring efforts after the conglomerate’s chairman, Lee Kun-hee 72, suffered a heart attack.

“The merger is intended to create a world-class total-solution company, encompassing both land and ocean,” the companies said in a statement.

Both companies will hold shareholders’ meetings on Oct. 27, with the aim of finalizing the merger by Dec. 1.

“The two companies’ core businesses involve building plants, although the areas of business don’t overlap,” the companies’ statement said. “Samsung Heavy Industries specializes in offshore plant construction based on shipbuilding technology, while Samsung Engineering focuses on building petrochemical plants. Once merged, they will create great synergy.”

The former will tap the latter’s competitive edge in designing, purchasing and managing plant-related projects, the statement said. The latter will help the merged company achieve sustainable growth by tapping into the offshore plant industry.

Under the merger, 2.36 shares in Samsung Heavy Industries will be exchanged for each Samsung Engineering share.

With Samsung Heavy Industries holding 17.4 trillion won in assets and Samsung Engineering holding 5.9 trillion won, the resulting company will be a giant builder of industrial plants with assets worth 25 trillion won.

The new entity, likely to adopt a new corporate name, is expected to achieve annual sales of 40 trillion won by 2020. Last year’s sales were 25 trillion won.

Experts believe the merger will be positive in the long run, but that immediate gains will be limited.

“Samsung Heavy Industries posted a 362 billion won operating loss in the first quarter,” said Korea Investment and Securities analyst Lee Kyung-ja. “It may have to set aside additional reserves against possible future losses, which could pose risks.

“It will take time for the two companies to turn profitable.”

NH Investment and Securities analyst Kang Seung-min agreed on the long-term benefits of the merger.

“Samsung Engineering, by acquiring offshore plant-building expertise, has developed a competitive business model,” he said. But he also added that it would take some time to reap the benefits of the merger.

In July, Samsung SDI, the group’s battery unit, merged with Cheil Industries.