Hyundai Heavy Industries Holdings (HHIH) has criticised the European Union's "unreasonable" decision to prohibit its proposed merger with Daewoo Shipbuilding and Marine Engineering.

The shipbuilder is now preparing a possible legal appeal against the ruling, announced today by EU competition commissioner Margrethe Vestager.

"After reviewing the final decision of the [European] commission, HHIH will pursue possible measures, including an appeal to the General Court of the EU," HHIH said.

The EU said the merger would create a dominant position in the large LNG carrier market, with the two South Korean shipbuilders controlling 60% of the business.

HHIH said it was disappointed by the decision and claimed that the EC authorities had misunderstood the nature of competition in the shipbuilding industry.

The Ulsan-based shipbuilder said the EC had not listened to its explanation that "market share itself is not a proper indicator of market power in the shipbuilding industry".

It said there are numerous other credible competitors in the LNG market. It named compatriot Samsung Heavy Industries, Japanese yards Mitsubishi and Kawasaki Heavy Industries, China's Hudong-Zhonghua Shipbuilding and Russia's Zvezda Shipbuilding Complex.

Credible alternative

"The existence of at least one credible alternative to the merged entity may be enough to constrain their ability to exert market power following the proposed merger," HHIH argued.

It also said that building LNG carriers requires a licence for the containment system from either France's GTT or Norway's Moss Maritime. Around 30 shipyards currently hold licences.

"From the production and technology perspective, those players can participate [in] the bidding competition any time without difficulties," HHIH pointed out.

The shipbuilder cited comments from the Competition & Consumer Commission of Singapore (CCCS), which has approved the merger.

It said the CCCS had agreed that the shipbuilding market is a "bidding market".

"In bidding markets, having high market share may not confer market power, as market share can be easily lost in the next bidding round," HHIH said.