"The Nation of Straws"... Baemin's Parent Company Fined in EU and Raises Fees in Korea [Business & Issues]

Concerns Over Antitrust Fines for 'Delivery Hero'
Controversy Over Sudden Increase in Baemin Brokerage Fees
Expansion to Over 70 Countries... Growing Financial Risks

[Image source=Yonhap News]

As Baedal Minjok suddenly raises its brokerage fees, controversy is growing as its parent company, Germany's Delivery Hero, is reportedly facing a hefty fine from the European Union (EU). Critics are accusing the company of increasing brokerage fees in Korea to cover the EU antitrust fine. Apart from the fine, Delivery Hero is also securing large amounts of cash for financial management due to business expansion, raising concerns that it may further increase dividends and brokerage fees for overseas subsidiaries such as Baedal Minjok.

Baemin Parent Company 'Delivery Hero' Sees Stock Plunge Amid Antitrust Fine Concerns

On the Frankfurt Stock Exchange (ETR) in Germany, Delivery Hero's stock price was 20.03 euros on the 17th. The stock, which had risen above 33 euros in April, plunged more than 7% to 19.50 euros on the 8th of this month and has since struggled to rebound, remaining stagnant in the 20-euro range.

Investor sentiment has worsened following Delivery Hero's announcement that it could be fined 433 million euros (approximately 654 billion KRW) by the EU Commission for antitrust violations. Earlier, suspicions arose that Delivery Hero's affiliated food delivery companies had violated antitrust laws by agreeing not to hire each other's employees and sharing business secrets. In response, the EU Commission conducted surprise inspections without prior notice at Delivery Hero's headquarters and European branches twice, in July 2022 and November last year.

Although the EU has not yet disclosed the exact amount of the fine, Delivery Hero is reportedly setting aside funds in preparation for the penalty since last year. According to the IT media outlet TechCrunch, Delivery Hero stated, "We have separately set aside 186 million euros (approximately 280.8 billion KRW) in preparation for the EU fine and plan to increase this reserve going forward," adding, "We intend to fully cooperate with the EU investigation."

Controversy Over Baemin's Sudden Brokerage Fee Hike... Is It to Fund the Fine?

[Image source=Yonhap News]

In this context, Baedal Minjok's sudden announcement of a brokerage fee increase has sparked controversy over whether it is intended to secure funds for its parent company's fine. On the 10th, Baedal Minjok announced that the brokerage fee for the 'Baemin1 Plus' (Baemin's own delivery service) plan would be raised by 3.0 percentage points from the existing 6.8% (of the order amount) to 9.8%.

Last year, Delivery Hero also drew criticism for receiving dividends amounting to 412.7 billion KRW from Baedal Minjok. Woowa Brothers, the operator of Baedal Minjok, recorded two consecutive years of profits with consolidated sales of 3.4155 trillion KRW and operating profit of 699.8 billion KRW last year, distributing a massive dividend equivalent to 58% of total operating profit.

Along with the large dividend, Woowa Brothers also lent 400 billion KRW to HungerStation, Delivery Hero's subsidiary in Saudi Arabia. This resulted in cash outflows exceeding last year's operating profit. Consequently, as of the end of last year, cash and cash equivalents decreased from 723.7 billion KRW to 530.9 billion KRW.

Following the huge dividends and loans, the significant increase in brokerage fees has provoked strong opposition from affiliated merchants and transport unions. On the 15th, the Korea Federation of Small and Medium Business Owners, the National Franchisee Council, and the Public Transport Union Rider Union held a rally in front of Woowa Brothers' headquarters in Songpa-gu, condemning Baedal Minjok for "exploiting small merchants, self-employed workers, and delivery laborers to fatten the parent company’s profits and causing a surge in national dining expenses." They pointed out, "Recently, Baemin has expanded Baemin delivery, which effectively increases the fees and delivery costs for affiliated merchants, recording huge operating profits, of which more than half?400 billion KRW?was paid as dividends to the German parent company. This is why Baedal Minjok is criticized not as 'Baemin' but as 'German Minjok' or 'Straw Minjok.'"

Dominating Delivery Markets in Over 70 Countries Worldwide... Expanding Financial Risks

[Image source=Delivery Hero homepage]

Delivery Hero is burdened not only by the EU fine but also by massive debts incurred during business expansion. The company is in a situation where securing cash through dividends or fee hikes is inevitable.

According to major foreign media, as of the end of last year, Delivery Hero's debt consisted of convertible bonds (CB) worth 4.4 billion euros (approximately 6.6381 trillion KRW) and loans totaling 1.0574 billion euros (approximately 1.5953 trillion KRW). This is roughly equivalent to Delivery Hero's total market capitalization of about 5.7 billion euros.

Delivery Hero maintains that it can adequately manage the maturity repayments of CBs and loans through cash flow generation. Recently, the company decided to repurchase CBs worth 300 million euros (approximately 450 billion KRW) maturing in 2025 and 2026. The loan repayment due in August 2027 was extended to December 2029. Although these decisions aim to optimize capital structure, if performance deteriorates or unforeseen events occur, triggering early redemption rights on CBs all at once, financial risks could increase significantly.

Concerns about financial management have also arisen following the sudden resignation of the Chief Financial Officer (CFO) who led Delivery Hero for the past decade. On the 8th, CFO Immanuel Thomas resigned, and Marie Anne Pop, Senior Vice President of Finance, was appointed interim CFO. No announcement has been made regarding the appointment of a new permanent CFO.

As a result, there are worries that Delivery Hero will strengthen its control over Baedal Minjok, its largest single operation among over 70 countries worldwide, focusing more on securing cash through dividends and fee hikes. Indeed, Woowa Brothers saw former CEO Lee Guk-hwan resign for personal reasons on the 2nd, with Peter-Jan van de Vliet, Delivery Hero's Chief Operating Officer (COO), stepping in as interim CEO.