Samsung Group’s Shipbuilding, Engineering Merger Scrapped

By Kyunghee Park

Samsung Group scrapped a 2.5 trillion won ($2.3 billion) merger of its shipbuilding and engineering units that would have helped them compete better against European rivals. Shares of both companies fell.
Samsung Heavy Industries Co. (010140), the world’s third-largest maker of ships, called off the merger with Samsung Engineering Co. (028050) after some investors asked the companies to buy back the shares they held, the two companies said in statements today. According to regulations in South Korea, a company can call off a merger should buyback requests reach a level that could increase its financial burden.
“This is bad news for the two Samsung Group units,” said Lee Jae Won, an analyst at Yuanta Securities Korea in Seoul. “It raises concern about the future of
the companies and there will be a short-term negative impact on their shares.”
Samsung Group, South Korea’s largest conglomerate, planned the chaebol’s biggest merger to help the companies effectively compete with Technip SA (TEC) and Saipem SpA (SPM) in the offshore oil and gas market. A combination of the two Seoul-based manufacturers would have the scale to bid for bigger orders, such as building large LNG ships and development of energy projects.

Source: Samsung Heavy Industries Co. via Bloomberg

An undated company handout shows Samsung Heavy Industries Co.'s shipyard in Geoje... Read More

Samsung Heavy had to buy back 923.5 billion won of stock from shareholders opposed to the merger, according to a regulatory filing today. Investors in Samsung Engineering returned 706.3 billion won of stock. The two companies said Sept. 1 they could call off the plan should the buyback reach more than 950 billion won and 410 billion won, respectively.

Shares Plunge

Shares of Samsung Heavy and Samsung Engineering plunged the most since April in Seoul. Samsung Heavy tumbled 6.4 percent to 23,450 won, Samsung Engineering slid 9.3 percent to 53,600 won.
The combined entity planned to increase sales to 40 trillion won in 2020, from 25 trillion won last year, according to a Sept. 1 statement.
“Going ahead with the merger would have been a big burden on the financials of the combined company,” Samsung Heavy and Samsung Engineering said in a joint e-mailed statement. “This would have eventually undermined shareholder value. However, we will continue to work closely together to create more synergies in the offshore oil and gas market.”
The merger was proposed to combine Samsung Heavy’s offshore expertise and Samsung Engineering’s project management knowhow to minimize risks of cost overruns, Samsung Heavy’s Chief Financial Officer Chun Tae Heung said in September.
Samsung Heavy plans to set up its first overseas facility to build bulk ships, tankers and smaller container vessels. The company also aims to build modules at the shipyard it plans to build in Southeast Asia to be assembled into factories for Samsung Engineering.
Samsung Heavy is buying back 12 million of its own shares from the market in efforts to “enhance shareholder value,” the company said Oct. 29.
Shareholders of the engineering company were to get 2.36 shares in the vessel maker in a merger that’s based on share prices of 26,972 won for Samsung Heavy and 63,628 won for Samsung Engineering, according to the Sept. 1 filing.
(An earlier version of this story was corrected for wrong company name)