South Korea’s antitrust watchdog ordered Delivery Hero SE to sell its local unit before proceeding with its planned acquisition of the country’s largest food delivery platform.
The Korea Fair Trade Commission approved Delivery Hero’s takeover of Woowa Brothers Corp. under the condition that it divests Delivery Hero Korea, which operates the nation’s second largest food delivery app under the Yogiyo brand, the regulator said in a statement on Monday.
“We are deeply saddened by the required condition to divest Delivery Hero’s subsidiary Delivery Hero Korea in South Korea,” the German company’s Chief Executive Officer Niklas Ostberg said in a separate statement on its website. “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.”
Delivery Hero’s share price rose as much as 11.5% in early Frankfurt trading, reaching a record high of 132.10 euros.
Read More: Delivery Hero Falls as South Korea Deal Faces Antitrust Snag
The company has six months to sell the business and has been asked for “behavioral remedies” to maintain the status quo of the Korean unit until it’s sold, which include keeping the commission rate for restaurants, connection speed and monthly promotions the same, the company said. It expects to close the combination with Woowa in the first quarter.
The deal involves the establishment of a joint venture in Singapore that will manage Delivery Hero’s Asian operations under the “Foodpanda” brand and Woowa’s units in Korea, Vietnam and Japan. Jakob Angele, the head of Foodpanda Asia, and Woowa’s Chief Financial Officer, Sean Oh, will be Co-CEOs.
The regulator’s decision is in line with an initial report made by a review team at the FTC in November. The commission held its final hearing last week to make Monday’s order.
A merger of the South Korean unit, Yogiyo, and Woowa’s “Baedal Minjok” brand, which together control a combined market share of 99.2%, could lead to higher fees for restaurants and also hurt customers, the FTC said. It could also prevent other competitors from entering the market because of its strong market power and information assets, it said.
The decision came after some South Korean lawmakers expressed concerns over the takeover as the coronavirus outbreak put pressure on small restaurants and mom-and-pop stores.
Delivery Hero announced plans to take majority control of the Korean food-delivery app in December last year at a $4 billion valuation, expanding the German company’s presence in the fast-growing Asian market. The investment would also help Woowa go up against SoftBank Group Corp.-funded competitor Coupang, which has been investing aggressively in food delivery.
— With assistance by Amy Thomson
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