Berlin-based online food delivery platform, Delivery Hero has been looking to acquire Woowa Brothers Corp. (“Woowa”) – a company that owns South Korea’s largest food delivery service Baedal Minjok, in a $4B (approx €3.6B) deal for quite some time now, but there was a catch!
The catch in the deal!
On December 28, 2020, the Korea Fair Trade Commission (KFTC) issued a press release stating that it will approve Delivery Hero SE’s previously announced joint venture with Woowa under the condition of the divestiture of Delivery Hero’s 100 per cent South-Korean subsidiary Delivery Hero Korea LLC. (“Yogiyo”) within six months from the date of which Delivery Hero will receive the KFTC’s final written decision. Delivery Hero will be allowed to request an extension of the sale period for up to six months under certain circumstances.
Following the issue of this press release, on the very same day, Delivery Hero announced that it will receive conditional regulatory approval of its strategic partnership with Woowa. However, the regulatory approval will be conditional upon “structural and behavioural remedies on the South Korean subsidiary until the completion of the divestiture.”
Speaking on the development, Niklas Ostberg, CEO and co-founder of Delivery Hero, says, “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 and I’m particularly excited to welcome Bongjin Kim to our family of entrepreneurs upon closing. His team brings tremendous experience and together, we will be able to expand and enhance our presence across Asia.”
“We are deeply saddened by the required condition to divest Delivery Hero’s subsidiary Delivery Hero Korea in South Korea. I want to personally express our gratitude to the team for all these years of collaboration and quest to create an amazing customer experience. We wish Delivery Hero Korea the best for the future, and will work hard to ensure that this transition is as smooth as possible for all impacted employees,” he further adds.
South Korea’s regulatory authority on anti-trust, KFTC had to intervene because, as per reports, if Delivery Hero hangs on to Yogiyo, the combined user bases of that app and Woowa Brothers’ Baedal Minjok would have given Delivery Hero almost 98.7% of the market share in South Korea. This significant market share has therefore raised concerns regarding its impact on competition in the fast-growing South Korean food delivery space.
Transaction overview
Delivery Hero had announced the purchase of shares in, and the establishment of a joint venture with the management of Woowa, the operator of South Korea’s largest food delivery platform, on December 13, 2019.
The transaction includes the establishment of a joint venture in Singapore. The agreements were signed on December 13th, 2019, and has since been under review by the KFTC.
“As agreed at signing of the transaction in December 2019 and based on the then-agreed volume-weighted average price of the Delivery Hero share and valuation of Woowa, the consideration consists of both a cash and an equity component (approx €1.7B in cash and approx €40M in Delivery Hero shares). This corresponded to $4B (approx €3.6B) on a cash and debt free basis (before customary adjustments) at the time of signing, and prior to the share price development between December 2019 and closing,” says Delivery Hero in a press release.
According to Delivery Hero, it expects to receive the final written approval and closing to occur in the first quarter of 2021.
Earlier in January 2020, Delivery Hero had raised €2.3B from the sale of its shares and convertible bonds to fund the acquisition of Woowa Brothers.
Remedies required for approval
The regulatory approval is conditional upon structural and behavioural remedies on the South Korean subsidiary until the completion of the divestiture.
The structural remedy requires Delivery Hero to divest 100 per cent of Delivery Hero Korea (including Yogiyo). The timeframe given for the divestment is 6 months from the date of which Delivery Hero will receive the written decision, however, the company will be allowed to request an extension of the sale period for up to six months under certain circumstances. And the behavioural remedies are designed to maintain the status quo of Delivery Hero until the completion of the divestiture.
The behavioural remedies are as follows:
a) separate and independent operations of Delivery Hero’s South Korean subsidiary Delivery Hero Korea LLC from Delivery Hero’s and Woowa’s other delivery apps.
b) prohibition to any change in the actual commission rate applied to restaurants.
c) monthly use of at least the same promotion amount used in the same month of the previous year and prohibition of discrimination.
d) prohibition to change delivery app access or speed of connection, user interface, information provided, etc., and to coerced conversion, or solicitation to convert, to both parties’ other affiliated delivery apps.
e) prohibition to disadvantageous changes to the working conditions of Yogiyo riders or soliciting them to Woowa.
f) prohibition to transfer and sharing of data.
About Delivery Hero & Woowa Brothers
Delivery Hero is a local delivery platform, operating its service in 50 countries across Asia, Europe, Latin America, the Middle East and North Africa. The company started as a food delivery service in 2011 and is currently running its own delivery platform. Additionally, the company is also planning to set its foot in the e-commerce sector, aiming to bring groceries and household goods to customers in under 20 minutes. Delivery Hero is listed on the Frankfurt stock exchange since 2017 and became part of the leading index DAX (Deutscher Aktienindex) in 2020.
Earlier in September 2020, the company acquired the Latin America operations of Glovo – a Barcelona-based on-demand delivery startup – for up to €230M, including a €60M performance-based earn-out.
As for Woowa Brothers, it was founded in 2011, and its service portfolio includes local marketing and web services solutions and products, such as a sports events app and a food delivery app. The company operates South Korea’s leading online food delivery platform under its brand ‘Baedal Minjok’. Woowa has also launched an instant grocery delivery service called ‘B Mart’, which provides grocery delivery services under 30 minutes.
