The Korea Fair Trade Commission (KFTC) approved Hyundai Genuine’s acquisition of Doosan Infracore’s shares on July 19th, 2021, after determining that the proposed merger would not constrain competition in relevant markets such as excavator and wheel loader markets.
*The proposed merger was notified to and approved by countries such as Russia, China, Turkey, and Vietnam.
On April 29th, 2021, Hyundai Genuine filed a merger notification with the KFTC to acquire a 34.4 percent stake in Doosan Infracore.
*Prior to this, Hyundai Heavy Industries Holdings (HHIH) formed a consortium with KDB Investment (which participated as a financial investor) and initially reported the acquisition on February 9th, 2021, but Hyundai Genuine, an intermediary holding unit of HHI Group, took over the parent’s stake in Doosan Infracore.
Hyundai Construction Equipment (HCE), an affiliate of Hyundai Genuine, manufactures and sells construction equipment and forklifts while Hyundai Core Motion manufactures and sells parts for construction equipment.
Doosan Infracore manufactures and sells construction equipment, its engines, and also forklift engines.
Through the proposed acquisition, Hyundai Genuine will act as an intermediary holding company within HHI Group that oversees the construction equipment business.
The KFTC reviewed whether the proposed merger would affect competition in relevant markets, in particular domestic markets for excavators and wheel loaders where horizontal mergers occur and domestic markets for excavators, wheel loaders, engine-based forklifts, and eight markets for equipment parts* where vertical mergers occur. The KFTC approved the proposed acquisition as it would not constrain competition on relevant markets based on the following reasons.
*Excavator•wheel loader•forklift engines, Excavator MCV•swing motors•travel motors•hydraulic cylinders, Wheel loader hydraulic cylinders
First, in the case of horizontal mergers, the combined market share for excavators amount to 51.2% and 66% for wheel loaders in Korea and the merger would widen the gap with the second largest business (Volvo), thereby raising anti-competitive concerns according to the Monopoly Regulation and Fair Trade Act (MRFTA).
However, supply of excavators and wheel loaders in Korea exceed demand, so merging parties won’t be able to increase prices based on their market shares. The capacity of domestic manufacturers to supply excavators and wheel loaders exceed demand by four- and eighteen-folds at most, respectively.
Even if the merging parties raise prices, since brands show high similarity, competitors have sufficient ability to respond to a price increase, and equipment of foreign brands can be easily imported,
consumers can easily divert their purchases.
Moreover, the Upward Pricing Pressure (UPP)* analysis showed that prices would not increase post-merger, and it was likely that a high share of imports along with sufficient competition in the global market would reduce anti-competitiveness in the domestic market.
- UPP (Upward Pricing Pressure): An economic analysis tool that was adopted in the 2010 US Horizontal Merger Guidelines and used by competitive authorities in merger review cases. It measures the possibility of a post-merger price increase based on indexes such as the merging parties’ margins and diversion ratios.
Second, vertical mergers that arise between markets for excavators, wheel loaders, engine-based forklifts, and eight equipment parts in Korea have been examined based on their foreclosure effects and were determined as having few anti-competitive concerns for the following reasons.
Considering that HCE receives excavators and wheel loader parts from Hyundai Core Motion and that Doosan Infracore develops its own excavator and wheel loader engines, it is less likely that the proposed merger would foreclose competitors’ products.
Moreover, considering the size, ability, technology, export shares of competitors that supply excavator and wheel loader engines and equipment parts to merging parties, the proposed acquisition is less likely to foreclose competitors’ products as there will be sufficient substitutes in the domestic and foreign market.
The proposed merger is meaningful in that it will help Doosan Heavy Industries, which is facing financial difficulties, smoothly proceed with its corporate restructuring process. It will also strengthen the competitiveness of merging parties in the construction equipment market at home and abroad.
The KFTC will swiftly review M&A cases that enhance the competitiveness of companies given that there are no anti-competitive concerns, and thereby help companies smoothly proceed with its corporate restructuring process.