Woowa Brothers-Delivery Hero deal to get conditional OK

Founder and former CEO of Woowa Brothers Kim Bong-jin, left, answers staff questions at the company's headquarters in Songpa-gu, Seoul, last month. / Courtesy of Woowa Brothers

By Kim Jae-heun

The top antitrust regulator plans to grant “conditional approval” to Delivery Hero's $4 billion acquisition of Woowa Brothers ― the firm behind Seoul's most popular food delivery app.

A condition is that the merged unit presents various “follow-up” measures to guarantee innovative activities.

“The Fair Trade Commission (FTC) plans to grant a conditional approval of Delivery Hero's proposal to take over Woowa Brothers on the basis that the merged entity should help the relevant business segment create additional ecosystems utilizing its dominant position in the market,” a government official told The Korea Times, Friday.

The official, who wished to remain anonymous, said the regulator plans to ask for specifics of the management of the merged unit in terms of “innovation” because the deal, if finalized, would put the entity in an indisputable position in handling a massive amount of consumer data.

“As far as my understanding goes, the antitrust regulator is to review similar cases to analyze their estimated impact,” another government official said.

“What matters about the deal is that the President Moon Jae-in administration is pushing ahead with initiatives to help companies monetize their innovative business ideas while properly protecting the best interests of other business areas that will be affected.”

Woowa Brothers owns Baedal Minjok (Baemin). Delivery Hero is one of the world's top online food delivery groups. It plans to pay $3.48 billion for 87 percent of the South Korean company, which is also part-owned by non-Korean investors. The total value of the deal is about $4 billion.

The acquisition proposal has raised concerns over a possible delivery monopoly. According to the Korea Franchise Association, Baemin has a 55.7 percent market share, followed by Yogiyo with 33.5 percent and Baedaltong with 10.8 percent. The latter two are subsidiaries of Delivery Hero.

Kim Dae-ho, of the Institute for Global Economy, said Baemin should not be sold to the German company.

“Baemin is an iconic company in that it grew with the social trend of eating alone and one-person households,” Kim said. “It also started its business with an idea to build a win-win relationship with small restaurant owners by creating a delivery service app.”

South Korean restaurant owners remain “very negative” about the impact of the deal, claiming Delivery Hero could easily increase commissions.

The Korea Federation of Micro Enterprises (KFME) recently held a joint press conference at the National Assembly with Rep. Choo Hye-sun of the minor Justice Party to express concern at Delivery Hero's possible moves to impose a “heavier burden on small businesses.”

The alliance warned that it will take collective action, including boycotting the delivery application, if Baemin raises commissions and advertising fees.

Small business owners' anger is deepening after local media reports said there is no contract clause in the stock sale agreement preventing Delivery Hero from raising commissions or advertising fees.

Woowa Brothers said: “In cases of global M&A's contract papers, it's normal not to include the specifics of the future operation plans like raising commissions or not. Rather, Woowa confirmed it will maintain its current policy in terms of maintaining the lowest commission fee, even after the completion of the takeover.”

Woowa Brothers earlier said it will lower the commission fee from 6.8 percent to 5.8 percent from May this year.

“The 5.8 percent of commission fee that Baemin applies to users is not even half that other delivery service applications apply,” a Baemin official said. “We have been maintaining the lowest commission fee for the last 10 years and we will keep it in the future.”

Woowa Brothers' top management also is under pressure in the market after Coupang Eats entered the delivery service scene. It is backed by Masayoshi Son's SoftBank.

According to Euromonitor estimates, the Asia-Pacific will account for half the $221 billion global expenditure on online food delivery in 2019.