Delivery Hero, Woowa $4 bn merger faces hiccup due to KFTC

The proposed merger between Germany-based Delivery Hero SE and South Korea's Woowa Brothers Corp. has hit a roadblock due to the Korea Fair Trade Commission (KFTC) issuing conditional approval, according to the investment banking industry on Nov. 16.

In December last year, Delivery Hero announced that it would acquire an 87% stake in Woowa, the operator of Korea's largest food delivery app Baedal Minjok (Baemin), for $4 billion. The deal has raised concerns over a market monopoly.

Delivery Hero operates Yogiyo, the country's second-largest food delivery service with a 30% market share and Baedaltong, which holds 1.2%. If the merger goes through, it would mean the merged entity's market share would expand to over 90.8% as Baemin currently accounts for 59.7% as the country's No.1 food delivery app service.

The announcement that the two leading industry players would merge prompted lawmakers to request the deal to be scrapped alongside unpopular reception from the public on the grounds that it was anti-competitive.

For such reasons, the KFTC is likely to have ordered Delivery Hero to offload Yogiyo to prevent the risk of a market monopoly. The regulator also raised concerns that Delivery Hero could offer reduced fees alongside discounts that would be a heavy blow to smaller competitors unable to compete in the same way. 

Regarding criticism that the merger is anti-competitive, some industry players have argued that the deal would not deter market competition since anyone can create a food delivery app and jump in the market. Also, they argued that if the deal was to be terminated then it would impede the growth of internet startup companies.

Korea's food delivery market is the world's fourth largest, standing at around 20 trillion won ($18 billion) as of 2019. Given its robust market, multinational Delivery Hero deemed it important to solidify its position in the country prior to expanding across other Asian markets. 

POSSIBILITY OF DEAL BEING SCRAPPED

Industry watchers say it is highly doubtful that Delivery Hero will accept the regulator's order to sell off Yogiyo, which has been in operation since 2012. If Delivery Hero rejects KFTC's order then the deal is likely to be scrapped.

"Woowa even considered transferring its office to Singapore to avoid local regulations, but that's an unlikely scenario as its business is basically built on the domestic market," said an industry source.

Some have pointed out that Delivery Hero may accept KFTC's conditional approval, which will keep the company's market share at 59.9%. In this case, there is a chance that smaller industry peers such as Coupang Eats may step up to acquire Yogiyo.

Meanwhile, Delivery Hero has made it clear that it will operate the three food delivery companies — Baemin, Yogiyo, Baedaltong — as separate brands in a move to extinguish concerns over a potential monopoly.

"In 2009, the KFTC approved of the deal between the US-based eBay and Korea's No. 1 online e-commerce platform Gmarket despite the two companies having a combined market share near 90%," said a Delivery Hero official. "It's hard to accept the conditional approval given that we decided to operate Yogiyo and Baemin as two separate brands."

The KFTC is set to hold a standing committee hearing next month, during which commissioners will deliberate on the conditional approval.


“We plan to present a compelling argument that will persuade the commissioners," said a company source at Delivery Hero.

However, industry watchers say it is unlikely for the antitrust watchdog to change its stance.  

"Whatever Delivery Hero brings to the table, it won't change the KFTC's position on preventing a monopoly," said an industry source.


Write to Soo-young Seong at syoung@hankyung.com
Danbee Lee edited this article.