DH-Woowa Brothers Merger Virtually Blocked… Negative Impact on Entire Market
Market Limited to Delivery Apps… "Outdated Approach"
Concerns Over Investment Contraction and Competitiveness Decline… Global Expansion Strategy Also Hindered
[Asia Economy Reporters Kim Cheol-hyun and Joo Sang-don (Sejong)] The Korea Fair Trade Commission (KFTC) imposed a condition that Delivery Hero (DH) of Germany must divest Yogiyo if it wants to acquire Woowa Brothers (Baedal Minjok), judging that the merger of 'DH-Woowa Brothers' would create a monopoly in the delivery application market and requiring resolution of this issue. When determining the merger, the key factor of 'market definition' was limited to delivery apps rather than the entire food service industry, which has drawn criticism that the KFTC failed to consider the rapid changes in the information and communication technology (ICT) sector, i.e., its 'dynamic nature.'
On the 17th, an ICT industry insider said, "The KFTC's decision appears to stem from a lack of understanding of a market where new competitors emerge daily," adding, "When Gmarket and eBay merged over 10 years ago in 2009, the approval was granted with conditions limiting increases in seller commission fees, considering the dynamism of the open market. But now, market changes are much faster than back then." The problem lies not only in defining the market too narrowly as delivery apps but more significantly in not accounting for the speed of market changes.
In response to the unexpected precondition for the merger, DH immediately protested, raising concerns that if the merger with Woowa Brothers fails, it could lead to reduced investment in startups and weaken ecosystem competitiveness. The venture and startup sectors view the KFTC's stance as potentially harmful to the entire industry. There is particular worry about serious impacts on domestic startup investments. The common perception in the industry is that there are no venture capitalists (VCs) in Korea with enough capital to create unicorn companies, and the capital market is somewhat fragile for unicorn-rated companies to successfully exit.
Jung Mina, Policy Director of the Korea Startup Forum, said, "The startup and delivery app markets have been rapidly changing recently, so it is hard to understand why the KFTC applies such standards in this new industry sector that requires a flexible perspective," adding, "Initial public offerings (IPOs) and mergers and acquisitions (M&A) are challenges for all startups, but the KFTC's signal discourages companies from engaging in startup M&A amid industry convergence, ultimately harming the entire market." Related startup associations, including the Korea Startup Forum, plan to jointly oppose this issue.
The merger condition is also expected to affect Woowa Brothers' global expansion strategy. Woowa Brothers and DH had planned to establish a joint venture (JV) called 'Woowa DH Asia' to enter 11 Asian markets. If the M&A fails, criticism may arise that a domestically grown startup is being hindered in its efforts to expand globally.
DH is pinning hopes on the plenary meeting scheduled as early as the 9th of next month. They plan to persuade the full commission members at this meeting. The key issue is expanding the market definition from delivery apps to the entire food service industry or even the telephone order market. Broadening the market scope would significantly reduce concerns about monopoly.
Previously, the KFTC's secretariat (equivalent to prosecution) limited the market to 'specialized search services' when judging Naver Real Estate's abuse of market dominance, but this claim was rejected at the plenary meeting. If DH's position is not accepted at the plenary meeting, DH's options will be either to divest Yogiyo or abandon the Baemin acquisition. Although there is a possibility of administrative litigation against the KFTC's final decision, DH is in a difficult position to choose due to the urgency of the matter.
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