Delivery Hero's Korean unit sale hits dead end

Delivery Hero SE on Thursday postponed the deadline again for the final bidding of South Korea's Yogiyo, amid market doubts over the country's No. 2 food delivery platform's value as a stand-alone entity once it is separated from the German parent group.

Its five shortlisted bidders, including Shinsegae Inc.'s e-commerce brand SSG.COM and MBK Partners, were supposed to make binding offers by June 24, one week after the original deadline. Three other bidders were Affinity Equity Partners, Permira and Bain Capital.

It was not immediately known whether any one of the shortlisted buyers handed in final offers, with the bidding groups valuing the delivery platform at 1 trillion won ($900 million), half of the seller's asking price of 2 trillion won.

One of the final candidates, Shinsegae's SSG.COM, is highly likely to drop out of the race. Earlier in the day, it took over 80% of eBay Inc.'s South Korean operations for 3.44 trillion won in the parent group's biggest-ever transaction. Last month, the retail giant closed the 265 billion won purchase of domestic online fashion platform W Concept from IMM Private Equity. 

The indefinite delay in the sale of Yogiyo was blamed for its weak competitiveness compared to the sector leader Baedal Minjok or Baemin, and third-ranked Coupang Eats.

"The bidding process seems to be over," said one of the investment banking sources. "The sell-side has now opened the door wide, waiting until a suitable candidate shows up."

He noted that Yogiyo's new owner would need to spend a huge amount of money in building the Korean app's IT infrastructure and hiring delivery drivers from scratch as a separate entity from Delivery Hero. Some industry observers said the costs might be as much as starting a new business. 

"This deal could be like the tail wagging the dog. In particular, it will not be easy for private equity firms to turn it around within four to five years," he said.

Delivery Hero has put 100% of Yogiyo on the market in compliance with the conditions put forward by the Korea Fair Trade Commission last year to close its $4.3 billion purchase of Yogiyo's bigger rival, Baedal Minjok, or Baemin.

The German food delivery service provider must complete the sale by no later than February 2022. Baedal Minjok controls 66% of South Korea's delivery service market, trailed by Yogiyo with 17.9% and Coupang Eats with 13.6%. 

MBK Partners and Affinity had entered the race on expectations that the food delivery app might create synergy with the retail companies in their portfolios. But now they see little advantage in moving ahead with their bidding, according to the sources.

Bain Capital also has already pulled out of the bidding process. 

Industry watchers say it is just a matter of time before Coupang Eats overtakes Yogiyo once the Coupang Corp. unit expands beyond the Seoul metropolitan area, backed by the deep-pocketed e-commerce platform.

Morgan Stanley is handling the sale.

Write to Chae-yeon Kim and Jun-ho Cha at why29@hankyung.com
Yeonhee Kim edited this article.