'Woowa Brothers' overrated $4 bil. sale price'
Founder of Woowa Brothers Kim Bong-jin poses in this 2018 file photo. / Korea Times photo by Ryu Hyo-jin
By Kim Jae-heun
Last December, when German-based firm Delivery Hero announced its decision to acquire Woowa Brothers, the operator of the country's top online food delivery app Baedal Minjok (Baemin), there were those who thought the valuation of the Korean firm was “too high.”
Woowa's assumption in terms of calculating the estimated valuation was simple, according to industry officials. Only 6.4 percent of people in the country used the mobile application, according to a 2018 survey studying food consumption trends and that the online food delivery service has a bright future ahead.
An industry source said Woowa Brothers had planned to increase its commission charge for the platform fee from the very beginning in an apparent effort “to reduce the gap between its sale price and the market value.” However, its new fee system has backfired provoking restaurant owners who are suffering economically from the COVID-19 pandemic.
The suggested merger proposal by Delivery Hero is the largest after Unilever's acquisition of Carver Korea for $2.7 billion (3 trillion won) back in 2017. HDC Hyundai Development also announced its plan to acquire the country's second-largest airliner Asiana Airlines for 2.5 trillion won (some $2.2 billion) and the Asiana acquisition deal at only half the price that Delivery Hero will pay for Woowa Brothers, if the Korea Fair Trade Commission (KFTC) approves the acquisition plan.
This supports the industry source's argument that Woowa's market value has been overrated as there is no clear standard of market value for new businesses like delivery services and e-commerce yet. And the online food delivery player's decision to increase the commission fee was an expected move.
An official at KFTC refused to comment about issues regarding Delivery Hero and Woowa Brothers acquisition.
“Online food delivery service is a growing sector both globally and in South Korea. Baemin is also one of the leading players. Delivery Hero also took into account Woowa's accomplishments here as the No.1 service application and its founder, Kim Bong-jin,” a Delivery Hero Korean branch official said. “I cannot comment on the specifics of the valuation methods behind Woowa Brothers' $4 billion acquisition plan as the suggestion has been made between the two.”
The Delivery Hero's official added that the sale price for Woowa Brothers and Asiana Airline cannot be directly compared as they are “two different businesses.”
Woowa Brothers has no option but to wait until the KFTC completes the anti-trust agency's thorough review process on the proposal. Woowa Brothers' “apparent trick” to increase commission fees by alleging the new system will help 52 percent of restaurant owners to pay less has been forcing many of them to boycott the delivery service application.
The company said the recently-announced “new fee system,” which the app operator later vowed to change, had been planned before the acquisition announcement.
“Our commission fee issue has been on the discussion table since last September and people also posted a petition about it on Cheong Wa Dae's official website. Before the acquisition deal took place, we have been preparing the fee restructuring and fixed the rate that we thought was correctly-priced,” an official at Woowa Brothers said.
The Woowa Brothers official declined to comment regarding the sale price suggested and set by Delivery Hero as it was Delivery Hero which calculated the amount and will pay it.
Woowa Brothers reported an operating loss last year for the first time in four years. The worsening financial performance is also considered as another contributing factor for the delivery service player to rapidly increase the commission fee. Woowa reported an operating loss of 36.4 billion won, last year.
The cause of the firm's losses came from its investment in new businesses such as “B Mart” and “Dilly.”
Woowa Brothers have long been criticized for paying too little to deliverymen. Public opinion towards the company could have been different if the company had spent more money on labor costs but it reportedly reduced its payment per delivery by over 1,000 won this year.
In November, deliverymen were paid an average 5,500 won per order, which declined to 5,000 won in December and below 4,342 won in the last three months. An industry source claimed Woowa Brothers allegedly abused its power as a dominant player in the market.
Delivery Hero owns all top three players in the online food delivery service market and they comprise nearly 99 percent of the share. That means consumers' choice will be limited if one of the existing three players decides to increase the commission fee.