Fair Trade Commission opens merger review for petrochemical sector's first restructuring deal

The Korea Fair Trade Commission has launched formal merger review proceedings for "Daesan Project No. 1," the domestic petrochemical industry's first structural restructuring initiative.

The Fair Trade Commission said Wednesday it had submitted an examination report on the proposed petrochemical business restructuring merger involving Lotte Chemical, Lotte Daesan Petrochemical, HD Hyundai Oilbank and HD Hyundai Chemical to the full commission and served copies on the respondents.

The submission formally opens the merger review process. The examination report sets out the examiner's investigative findings and recommended measures, with a final decision to be made after deliberation by the full commission.

The proposed merger aims to consolidate the petrochemical production facilities of Lotte Chemical and HD Hyundai Oilbank affiliates within the Daesan Industrial Complex under a single corporate entity. Under the deal, HD Hyundai Chemical would absorb Lotte Daesan Petrochemical — a company Lotte Chemical spun off from its Daesan factory last June — and Lotte Chemical would then acquire an additional stake in the surviving entity, HD Hyundai Chemical.

Once the transaction closes, Lotte Chemical and HD Hyundai Oilbank would each hold a 50 percent stake in HD Hyundai Chemical, becoming joint majority shareholders. They would jointly operate the naphtha cracking centers and other petrochemical production facilities the two companies currently run separately within the Daesan Industrial Complex.

The examination report was prepared after the companies submitted proposed remedies. Under this process, when a company submits remedies to address competition concerns, the examiner incorporates them into the report. If the company agrees to the terms, the deliberation and resolution procedure is streamlined for faster processing.

After receiving a voluntary pre-screening application last November, the FTC examiner analyzed the production, sales and import-export status of 20 related products and gathered broad input from stakeholders.

As a result, the examiner determined that the merger could substantially restrict competition in the domestic markets for low-density polyethylene (LDPE) and ethylene vinyl acetate (EVA) through coordinated and unilateral effects arising from the horizontal combination of competing businesses.

In response, the companies drafted initial remedies to address the competition concerns, then submitted a revised version reflecting input from stakeholders and experts as well as the examiner's requests for modifications and supplementation.

The examiner reviewed the revised remedies and incorporated them into the examination report. While finding that the merger violates Article 9 of the Fair Trade Act, the examiner recommended a corrective order taking the remedies into account. The order includes both affirmative and prohibitive obligations designed to block the coordinated and unilateral effects and other competition-restricting consequences of the deal.

The FTC plans to convene a full commission hearing promptly to complete the merger review for "Daesan Project No. 1." The commission said it would also closely examine the competitive impact of subsequent petrochemical restructuring initiatives to preserve competitive order in the domestic petrochemical market.