[Insight & Opinion] Market Turmoil Over the 'TMON-WeMakePrice' Crisis... The Fair Trade Commission Remains Invisible

Unfair Transactions Among Qoo10 Affiliates Are Clear
All Acquired Companies Suffer from Capital Erosion
Problems in the Fair Trade Commission's M&A Review Process

The past week has been turbulent due to the unsettled payment situation involving open market platform companies TMON and WeMakePrice. Although there are signs of some stabilization following an emergency capital injection from their parent company Qoo10, both affected sellers and consumers remain anxious as the future course of the situation remains uncertain.

The situation of the parent company, Qoo10 Group, is also far from easy. Based in Singapore, Qoo10 acquired TMON in September 2022, and Interpark and WeMakePrice in March and April of last year, respectively. Through these aggressive acquisitions, Qoo10 secured an 8% market share in the Korean e-commerce market as of 2022, becoming the third largest player behind Coupang (37.7%) and Naver Shopping (27.2%).

It is well known in the market that Qoo10 Group’s actual goal is to list its logistics affiliate, Qxpress, founded in 2012, on the NASDAQ. The acquisitions of domestic companies like TMON and WeMakePrice are understood as part of a strategy to increase scale for this purpose. Particularly, in April, Qoo10 made a somewhat forced acquisition of the North America and Europe-based global shopping platform Wish, including all operating assets and liabilities, for approximately 222.3 billion KRW, which appears to have severely worsened its liquidity. Rushing corporate acquisitions without securing sufficient funds has led to the current unsettled payment situation. According to Yanolja, about 170 billion KRW of the Interpark acquisition payment remains unpaid.

In this state of insufficient liquid assets, Qoo10’s rapid use of all cash funds from TMON and WeMakePrice is judged to have caused the current unsettled payment issue. While not explicitly illegal under current law, this is clearly an unfair transaction between affiliates that goes beyond mere loopholes. Especially this year, TMON and WeMakePrice have shown somewhat excessive behavior in selling various gift certificates at a discount through prepaid recharge forms like TMON Cash and a 'pre-order then use' method. This misuse of funds was possible because Qoo10 Group exploited the flexible payment settlement cycles allowed under current distribution industry laws, which, while not illegal, were abused.

The problem lies in the fact that Qoo10’s unhealthy financial condition was already easily identifiable from publicly available data such as that from the Financial Supervisory Service, and even common sense would suggest that the Fair Trade Commission’s approval of Qoo10’s acquisition of domestic e-commerce companies holding an 8% market share was fundamentally flawed.

Despite these reasonable criticisms, the Fair Trade Commission’s response that “reviews related to mergers and acquisitions focus mainly on restrictions of fair competition” is laughable. Notably, all domestic companies acquired by Qoo10 are in a state of 'capital erosion,' with liabilities exceeding assets. As of 2022, the combined capital erosion of TMON and WeMakePrice amounted to a staggering 900 billion KRW. In every respect, Qoo10’s acquisitions cannot be seen as strengthening the competitiveness of the domestic e-commerce market but merely as a stepping stone to list its affiliate Qxpress on NASDAQ.

The Fair Trade Commission’s purpose is to ensure fair and free competition among companies to establish the fundamental order of economic activities, with its main functions being the promotion of market competition, consumer protection, and the suppression of economic concentration. Qoo10’s reckless acquisitions approved by the Fair Trade Commission do not align with any of these reasons for the commission’s existence. The current unsettled payment crisis has caused enormous damage to sellers and consumers, disrupted market order, and as a result, market concentration has intensified further toward existing giants like Coupang and Naver Shopping.

The Fair Trade Commission should adopt a comprehensive and holistic approach in reviewing mergers and acquisitions, going beyond simple market share calculations to deeply assess the financial condition of the companies involved and the true intentions behind the acquisitions and mergers.

Professor Kim Gyu-il, Michigan State University, USA