By Joyce Lee and Alexander Hübner
SEOUL/MUNICH (Reuters) - Germany's Delivery Hero will sell South Korean food delivery app Yogiyo as part of the conditions for regulatory approval of its $4 billion takeover of top South Korean food delivery app owner Woowa Brothers.
The sale clears a major hurdle for Delivery Hero in gaining the dominant position in the world's third-largest online food delivery market, as competition heats up amid accelerated demand triggered by the coronavirus pandemic.
Delivery Hero agreed last year to buy Woowa in a buyout that throws it a lifeline in an intensely competitive market.
Shares in Delivery Hero rose 3.6% after its statement accepting the decision, and adding in a regulatory filing that it expected to close the deal in the first quarter of next year.
"We are deeply saddened by the required condition to divest Delivery Hero's subsidiary," Chief Executive and co-founder Niklas Östberg said in the statement, while welcoming the regulatory approval.
"We... will work hard to ensure that this transition is as smooth as possible for all impacted employees."
On Monday, the Korea Fair Trade Commission (KFTC) had said it would approve the takeover on condition that Delivery Hero sold its entire stake in No. 2 food delivery app Yogiyo within six months, with the possibility of an extension.
The sale would ease concerns that diners would end up paying more under the current deal, while allowing the synergy that Delivery Hero cited as the reason for the acquisition, said KFTC chief Joh Sung-wook.
"Delivery Hero said the purpose of this deal is to combine its logistics technology and Woowa's marketing ability, and I think this is sufficiently possible," she told a briefing.
KFTC said the combined market share of the entity resulting from the takeover, if the unit was not sold, would have been 97% of food delivery transactions by July.
Even without Yogiyo, Woowa's No.1 app had about 15.8 million monthly active users by November, or 82% of all food delivery apps' monthly active users in South Korea, says mobile big data platform IGAWorks.
South Korea ranks third in the food delivery market after China and the United States, Euromonitor data showed, and is expected to grow 40% this year to about $15.4 billion.
Highlighting the growing market competition is the rapid spread in the Seoul region of Coupang Eats, a rival service by SoftBank-backed e-commerce firm Coupang launched in April 2019.
In November it ranked third in terms of monthly active users after Woowa's app and Yogiyo, according to IGAWorks.
Seoul analysts declined to comment on Yogiyo's exact valuation, but estimated it in the billions of dollars, adding that there may be few domestic potential buyers with pockets deep enough and willing to take on the market's No. 1 player.