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Delivery Hero to sell South Korea unit to rescue $4bn deal

Regulators made divestment a condition of German company's Woowa acquisition

Delivery Hero wants to buy South Korea's biggest food delivery company, Woowa Brothers, for $4 billion. (Source photos by Reuters)

SEOUL -- Germany's Delivery Hero said on Monday that it would sell its South Korean unit in order to secure regulatory approval for its $4 billion acquisition of the country's largest online food delivery company Woowa Brothers.

Delivery Hero operates Delivery Hero Korea, the No. 2 player in the market, and reached a deal last year to acquire Woowa Brothers, which runs the Baebal Minjok, or Baemin, app. The two companies would have had a combined market share of over 97%, which proved a sticking point for South Korea's Fair Trade Commission.

The antitrust regulator approved the deal on the condition that the Berlin-based company agreed to sell its 100% stake in Delivery Hero Korea, which runs food delivery app Yogiyo.

In a statement following the decision Delivery Hero indicated it would bow to the regulator's demands.

"The approval of our partnership with Woowa is great news for both our companies and the broader delivery industry. We are thrilled to be one step closer to making this collaboration come to life," said Niklas Ostberg, Delivery Hero's CEO.

"We are deeply saddened by the required condition to divest Delivery Hero's subsidiary Delivery Hero Korea in South Korea. ... We wish [it] the best for the future, and will work hard to ensure that this transition is as smooth as possible for all impacted employees," he said.

While Delivery Hero will have to give up Delivery Hero Korea, it will gain not only Woowa's business in the country but also the company's operations in Vietnam and Japan if the acquisition goes through.

Delivery Hero has six months from when it receives written confirmation of the regulators' decision to complete the divestment, but will be allowed to request a six-month extension under certain circumstances.

Seouls authorities had concluded that the acquisition would otherwise violate competition regulations, as the merged companies would almost entirely dominate the nation's food delivery market.

"The sale of Yogiyo will resolve worries about the deal limiting competition among various players in the delivery app platform while helping the companies create synergy through cooperation," FTC Chair Joh said in a press briefing earlier in the day.

The FTC's decision comes amid rising regulatory unease over the power of tech and internet companies, particularly in China, where authorities have accused Alibaba and financial affiliate Ant Group of monopolistic practices.

Delivery Hero inked the deal to buy Woowa Brothers last year. As part of the transaction, the two sides agreed to establish a joint venture in Singapore to manage the operations of Foodpanda -- Delivery Hero Group's Asian unit -- as well as Woowa entities in Asia including South Korea.

Kim Bong-jin Kim, CEO and founder of Woowa, will be appointed chairman of the board and executive director of the joint venture, Delivery Hero said on Monday. Jakob Angele, CEO of Foodpanda Asia, and Sean Oh, CFO of Woowa, will be appointed co-CEOs of the joint venture, in charge of the Foodpanda and Woowa business units, respectively.

Delivery Hero operates in more than 40 countries and territories across Europe, Latin America, the Middle East and Asia under multiple brands. It reported a gross merchandise value of 5.1 billion euros ($6 billion) and handled 519 million orders in the first half of the year, making it one of the world's major food delivery platforms.

A lawyer at Kim & Chang representing Delivery Hero said in a hearing last week that the market is changing quickly as Coupang Eats, the third-largest player, is using aggressive promotions to narrow the gap between it and the market leaders. Kim & Chang also suggested that Naver, the country's largest internet company, could use its wide customer base to jump into the market. Naver already offers a service connecting restaurants with customers.

The FTC rejected such arguments, however, saying Coupang is not strong enough to threaten either Baemin or Yogiyo because the company only operates in the greater Seoul area and its success has been limited to the capital's upscale Gangnam district.

"There's no evidences that Coupang Eats can pressure the companies in the market, even though it is growing quickly in some regions," FTC head Joh said.

A lawyer representing Woowa said the company had no choice but to accept Delivery Hero's $4 billion offer, as its own growth had slowed and it was facing challenge from Coupang, which is funded by SoftBank. Coupang, a South Korean e-commerce giant, raised $3 billion from SoftBank after Chairman Masayoshi Son bet on the company's growth potential.

The FTC board is the agency's highest decision-making organization, dealing with cases having major economic impacts. It consists of nine members, with five from the agency and four from outside.

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