The contract for the acquisition of DSME by South Korean rival Hyundai Heavy Industries (HHI) was signed on Friday amid protests in Seoul.
The deal sees Korea Development Bank (KDB) sell its majority holding of 55.7% in DSME, worth more than KRW 2trn ($1.78bn), to form a shipbuilding giant with a 20% share of the worldwide newbuilding market.
Hundreds of DSME union members clashed with riot police in front of KDB's headquarters as they attempted to storm the building to block the signing ceremony, according to Yonhap News Agency.
HHI has said it will ensure job security should productivity be maintained.
"Business relations with Daewoo Shipbuilding's subcontractors and related firms will be maintained," it added.
New CEO nominated
DSME said in a filing it had nominated vice president Lee Sung-geun as its new CEO. He will replace Jung Sung-leep, who was brought in to oversee its recent restructuring.
Lee has been at DSME since 1979.
KDB will now buy KRW 1.5 trillion worth of HHI shares to be issued later.
The bank will also consider a loan of KRW 1trn to help DSME.
HHI will later be split into two entities, one of which is to be listed. However, no further details have been released on this.
Hyundai Heavy Industries Holdings, the parent of HHI, will hold a 26% stake in the new entity, with KDB owning 18%.
Business relations with Daewoo Shipbuilding's subcontractors and related firms will be maintained
HHI
The mega-merger comes two years after KDB bailed out DSME, which had run into financial difficulty.
The South Korean giants are already dominant in the big tanker market with DSME sporting the world's largest VLCC orderbook, ahead of HHI, according to Clarksons.
LNG carriers
DSME also leads the world in the construction of LNG carriers, with HHI having the third largest orderbook in the sector and Samsung Heavy Industries sandwiched in the middle. The same trio lead the construction of large container vessels.
Major DSME clients include the BW Group, MSC and John Angelicoussis, while HHI has substantial orders in the book from Zodiac Maritime, Kyklades Maritime and Polaris.
In April last year, the Korean ministry of oceans and fisheries said it would seek a new owner for DSME in the mid to long term.
The ministry said the sale would be carried out after "considering market conditions and its business normalisation efforts".
Speculation then arose that the big three — HHI, DSME and Samsung Heavy Industries — could be cut to two through some form of combination. Samsung turned down the chance to buy DSME.
A previous $5bn deal to sell the yard to South Korea's Hanwha group collapsed in January 2009, after the buyer was unable to raise the money in the financial crisis.
