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Business deals

Germany's Delivery Hero to carry more food in Southeast Asia

Purchase of South Korea's Woowa will heat up race with Grab and Gojek

Woowa Brothers delivers food from more than 200,000 restaurants in South Korea.

SEOUL/FRANKFURT, Germany -- Multinational meal-ordering service Delivery Hero seeks a bigger portion of Southeast Asia's market with its planned acquisition of South Korean peer Woowa Brothers, intensifying a battle with rivals such as Grab and Gojek over the fast-growing region.

Asia's food delivery market remains in its infancy, and the region's big population offers room for growth, CEO Niklas Ostberg said, as the Berlin-based company plans to spend more than double its 2019 revenue in a $4 billion deal for Woowa.

Delivery Hero operates a network of over 20 food delivery brands in more than 40 markets, from Foodora in Scandinavia and Canada to Talabat in the Middle East and Foodpanda in several Southeast Asian countries.

The German company shifted focus to emerging markets after the surprise sale of its domestic business in December 2018 to Dutch rival Takeaway.com. Woowa, which has branched out to Taiwan, Vietnam and elsewhere, is expected to develop Delivery Hero's presence in Southeast Asia.

With Woowa's revenue, Asia will generate about half of Delivery Hero's worldwide sales, up from around 30% previously. Woowa CEO and founder Kim Bong-jin will manage the group's Asia-Pacific operations, bolstering them in South Korea, Taiwan, Hong Kong, Vietnam, Singapore and Thailand.

The group will gain Kim's business knowledge, Ostberg said, as it captures growth opportunities in Asia.

Woowa, which runs the Baedal Minjok service, takes 43 million orders monthly in South Korea to deliver food from over 200,000 partner restaurants, many of them in Seoul. Commanding more than half of the local market, Woowa nearly doubled revenue in 2018.

The secret ingredient in Woowa's rapid growth is convenience. Users do not need to type in their delivery address because the location information from their phones lets motorcycle-riding delivery staff see the precise destination, even outdoors such as a park.

Delivery Hero earned 1.45 billion euros ($1.58 billion) in revenue for 2019 but lost 430 million euros in adjusted EBITDA. The company is accelerating investments, and has yet to swing to the black.

But investors are eating up Delivery Hero's growth strategy. The stock now trades at 40% above the level before the Woowa purchase announcement in December. The company raised about 2.3 billion euros through the sale of convertible bonds and new shares to pay for the acquisition.

Delivery Hero aims to complete the purchase by June, upon winning the green light from South Korea's Fair Trade Commission. Since Woowa and No. 2 local player Yogiyo -- a member of the Delivery Hero group -- would combine for a market share of over 90% in South Korea, plans call for the two peers to remain competitors.

Southeast Asia is seeing a wave of realignment moves in the industry, with Uber Technologies selling its regional operations to Grab and its Indian business to Zomato. Indonesia's Gojek seeks to take its on-demand platform to more markets in the region, while Japan's chat app Line looks to expand its businesses in Asia as a new member of the SoftBank Group family.

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