The Korea Fair Trade Commission (KFTC) handed a restrictive approval on Monday to Germany-based company, Delivery Hero (DH) in its 4.35 trillion won (US$4 billion) deal for the acquisition of Korea’s top delivery operator, Woowa Brothers.
Previously, Delivery Hero announced its intention to acquire an 88 percent stake in Woowa, which runs the Baemin delivery app, last December 2019. DH operates three out of Korea’s four major delivery players, namely, Yogiyo, FoodFly, and Baedaltong. KFTC stated that it permitted the merger, but DH must let go of Yogiyo before pushing through with the deal.
Joh Sung-wook, Fair Trade Commission Chair, stated that the two companies’ unions might affect market competition. The merger might interfere with consumers’ rights and spark an abuse of power, such as unjust service charges.
The Trade Commission decided to submit a conditional approval because the proposed takeover would create a monopoly. The market monopoly would develop a limited competition that would extensively impact consumers, delivery workers, and restaurants.
KFTC instructed DH to give up its stake in Delivery Hero Korea, operator of Yogiyo and Baedaltong, within six months. DH should also maintain Yogiyo’s asset value and service quality at its current level until the sale process becomes complete.
The food delivery app market, which amounted to 10 trillion won (US$9.12 billion) last year, increased rapidly this year due to the COVID-19 pandemic.
According to market researcher Nielsen Koreanclick, Baemin’s average monthly users reached thirteen million in September, while Yogiyo reached 6.6 million. If the deal pushes through, the combined market share of Yogiyo and Baemin will reach 99 percent. This concern led to the conditional approval from KFTC, citing the merger between the two would severely hurt market competition.
The Commission stated that if Yogiyo and Baemin do not compete, it could diminish consumers’ benefits and increase restaurants’ commission fees. Consumers may not enjoy lower prices for delivery services since discount programs may no longer exist due to the monopoly.
The KFTC permitted DH’s acquisition of Woowa Brothers to create synergy between Woowa’s marketing ability and DH’s technology.