The merger, in which Samsung Heavy will absorb Samsung Engineering, also falls under chairman Lee Kun-hee’s succession plan for his three children, which has been picking up speed since his hospitalization in May.
Although Lee and his children do not directly own shares in Samsung Heavy and Samsung Engineering, they hold a considerable interest in the shipbuilder and the engineering unit through key affiliates such as Samsung Electronics, Samsung C&T and Samsung Life Insurance.
Analysts said the 25 trillion won ($24.6 billion) deal would help them recover from losses stemming from the prolonged industry downturn, and generate synergy in the engineering, procurement and construction (EPC) of offshore plants. Samsung Heavy has been eyeing offshore energy plants for new growth since 2010.
“Samsung Heavy will be able to use Samsung Engineering’s EPC capability to develop topsides of offshore energy plants,” said Lee Kyung-ja, an analyst at Korea Investment & Securities.
“Also, the merger will increase efficiency as it will reduce their overlapping businesses.”
Samsung Heavy, Samsung Engineering and Samsung C&T, the group’s three EPC contractors, had to compete in global bids ― sometimes teaming up as partners but most often as competitors. Each holds a strength in particular business: Samsung Heavy is one of the world’s top shipbuilders; Samsung Engineering mostly focuses on EPC of thermal power plants; and Samsung C&T offers total EPC services for civil infrastructure, energy plants and housing development.
The new entity via the merger, which will be finalized by the end of October at a shareholders’ meeting, will launch on Dec. 1 with a new vision that could further spur it to become a total engineering and construction services company, Samsung Heavy said.
“We will aim to become a competitive company using both sides’ technological expertise in the EPC of onshore and offshore plants,” Samsung Heavy CEO Park Dae-young said in a statement.
The merged EPC entity aims to achieve sales of 40 trillion won by 2020, from Samsung Heavy and Samsung Engineering’s combined sales of 25 trillion won in 2013, the two companies said.
Samsung Heavy plans to issue new shares, offering 2.36 shares per Samsung Engineering share to Samsung Engineering investors as part of the merger process.
The market had highly expected another restructuring of Samsung units following Samsung SDI’s acquisition of Cheil Industries and Samsung SDS’ initial public offering plan.
By Park Hyong-ki (firstname.lastname@example.org)