SEOUL – Efforts to create a South Korean food delivery giant ran into snags on Monday when regulators said Berlin-based Delivery Hero had to sell its local operations before it could proceed with the acquisition of domestic leader Woowa Brothers.
Delivery Hero operates Delivery Hero Korea, player No. 2 in the market, and agreed last year to acquire Woowa Brothers for $ 4 billion.
Nine Fair Trade Commission board members led by Chairman Joh Sung-wook approve the deal but only if the German company sells its 100% stake in Delivery Hero Korea, which runs the food delivery app Yogiyo. Otherwise, the authorities concluded that the acquisition would violate competition regulations, since the merged company would almost entirely dominate the national food delivery market.
“Yogiyo’s sale will resolve concerns about a deal limiting competition among various players on the delivery application platform while helping companies create synergies through cooperation,” FTC Chairman Joh said at a press conference.
The decision comes amid growing regulatory discomfort over the power of technology and internet companies, particularly in China, where authorities accuse Alibaba and financial affiliates of Ant Group of monopolistic practices.
Delivery Hero signed an agreement to buy Woowa Brothers last year. As part of the transaction, the two parties agreed to set up a joint venture in Singapore and allow Woowa founder and CEO Kim Bong-jin to manage Delivery Hero’s operations in the Asia-Pacific region.
Woowa runs Baebal Minjok, or Baemin, the largest food delivery app in the country, while Delivery Hero operates Yogiyo and Baedaltong, player No. 2 and No. 4 on the market. Their combined market share reached 97.4% in August by monthly active users, according to IGA Works, a mobile data analytics company.
Delivery Hero did not immediately respond to Nikkei Asia’s request for comment. The company has operations in more than 40 countries and regions in Europe, Latin America, the Middle East and Asia under various brands. It reported a gross merchandise value of 5.1 billion euros ($ 6 billion) and handled 519 million orders in the first half of this year, making it one of the world’s premier food delivery platforms.
A lawyer at Kim & Chang representing Delivery Hero said in a hearing last week that the market is changing rapidly as Coupang Eats, the third largest player, is using aggressive promotions to narrow the gap between it and market leaders. Kim & Chang also suggested that Naver, the country’s largest internet company, could use its vast customer base to jump into the market. Naver already offers a service that connects restaurants with customers.
However, the FTC rejected the argument, saying Coupang was not strong enough to threaten either Baemin or Yogiyo because the company only operated in the greater Seoul area and its success was limited to the capital’s upscale Gangnam district.
“There is no evidence that Coupang Eats can put pressure on companies in the market, even though it is growing rapidly in some regions,” said FTC chief Joh.
A lawyer representing Woowa said the company had no choice but to accept Delivery Hero’s $ 4 billion offer, because its own growth had slowed and faced challenges from Coupang, which is funded by SoftBank. Coupang, the South Korean e-commerce giant, raised $ 3 billion from SoftBank after Chairman Masayoshi Son made a bet on the company’s growth potential.
The FTC Board is the body’s highest decision-making organization, handling cases that have a large economic impact. It consists of nine members, with five from the agency and four from outside.
Delivery Hero has 30 days to appeal the FTC’s decision or file a complaint with the Seoul High Court.