TheChek News Flow

Seoul antitrust watchdog argues Woowa Brothers merger would hurt competition

Delivery Hero’s hopes of rapid expansion in Asia has hit a speed bump after South Korean antitrust regulators ruled a $4bn local takeover could only go ahead if the German group sold its existing business in the country.

The Berlin-headquartered food delivery business a year ago announced the acquisition of Woowa Brothers, which owns Baedal Minjok — more commonly known as Baemin — South Korea’s most popular food delivery app.

But the deal raised competition concerns because it would leave Delivery Hero — which already owns Baemin’s main rival, Yogiyo — with control of as much as 90 per cent of South Korea’s online food delivery market.

The Korea Fair Trade Commission on Monday approved the takeover on the condition that Delivery Hero divests from Yogiyo.

“There is a high concern that the proposed takeover could limit competition as it would have a far-reaching impact on various stakeholders of multi-faceted markets linked to delivery app platforms, such as restaurants, consumers and delivery workers,” the regulator said in a statement.

Delivery Hero did not immediately respond to requests for comment. Woowa declined to comment.

The planned takeover of Woowa is a big part of Delivery Hero’s expansion plans in Asia, where it faces competitors such as Indonesia’s Gojek, Singapore-based and SoftBank-backed Grab and Uber Eats. Woowa Brothers’ founder Kim Bong-jin would run the German group’s Asia business under the takeover plan.

In an August interview with the Financial Times, Delivery Hero chief executive Niklas Ostberg sought to allay antitrust concerns over the deal. He said that South Korea’s broader ecommerce market would benefit from more competition for popular online platforms such as SoftBank-backed Coupang, Kakao and Naver.

Approval of the deal was also complicated this year when Baemin faced criticism from small businesses and South Korean politicians for attempting to raise commission fees for restaurateurs.

If the takeover proceeds, it would mark one of South Korea’s biggest acquisitions involving an internet group.

Delivery Hero would pay $3.48bn for the 87 per cent of the Seoul-based Woowa, which is owned by venture and institutional investors including Hillhouse Capital, Altos Ventures, Goldman Sachs, Sequoia Capital and GIC, the Singaporean sovereign wealth fund. The remaining 13 per cent stake, which is valued at $520m and held by Woowa senior management, will be converted into shares of Delivery Hero.

The KFTC decision has also highlighted the thorny landscape facing antitrust regulators as they grapple not only with the rising dominance of global tech groups such as Google, Amazon and Alibaba, but also the creation of new monopolies in emerging sectors such as food delivery.

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Macro :

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Stock listings flourish in aftermath of hit from coronavirus pandemic

Companies raised more money through stock market listings in 2020 than in any year besides 2007, as a rebound in equities valuations lured in businesses and blank-cheque acquisition vehicles rushed to list in the US.

Businesses raised almost $300bn through flotations globally in 2020, including a record $159bn in the US, according to data provider Refinitiv. The boom included the public debuts of high-flying tech businesses such as DoorDash and Airbnb, as well as listings for groups that seek to buy others and fast-track them on to public markets.

The listings have provided financial firepower for companies in a year when the coronavirus pandemic hit hard but left vastly differing marks on financial markets from Hong Kong to London to New York.

After a violent pullback in March, US equities have rallied back to record heights, with investors snapping up shares of technology groups that have grown as consumers and businesses moved to work from home. That provided fertile ground for debuts including Snowflake, the cloud computing provider, and Unity Software, which makes technology for video game developers.

“Companies benefiting from the shifts that occurred saw incredible receptivity from a broad set of investors, ” said David Ludwig, head of equity capital markets in the Americas at Goldman Sachs. Mr Ludwig noted that demand was particularly strong for the flotations of technology, healthcare and consumer groups.

Jeffrey Bunzel, the head of equity capital markets at Deutsche Bank, added that investors had come to believe that coronavirus would have long-lasting effects, particularly on technology companies.

“There is a reality of how they have become important to the world,” he said. Some people will just “not feel comfortable going back to eating out and will continue to order food instead,” he added.

Stripping out the roughly $76bn raised through blank-cheque companies, deal activity in the US and Asia jumped more than 70 per cent from the previous year. Listings in Europe, by contrast were lethargic. At $20.3bn, they were down by a tenth from 2019 to reach almost half of 2018 levels.

Proceeds in Asia, at $73.4bn, would have been far higher if payment company Ant Group had not halted its blockbuster $37bn IPO after it ran afoul of Chinese regulators.

Ant’s absence handed Beijing-Shanghai High Speed Railway the year’s crown: the $4.4bn it raised in its IPO was the largest of the year, topping the $3.9bn raised in Snowflake’s listing and $3.8bn collected by Airbnb.

Listings for special purpose acquisition companies, or Spacs, have proliferated. Close to the end of the year, the blank-cheque businesses had accounted for slightly less than $76bn of the cash raised in the US. And others are expected to follow in the new year. In late December, SoftBank filed paperwork to list its own Spac on the Nasdaq.

Bankers and investors are now watching if the Spac phenomenon will migrate beyond the borders of the US, according to James Palmer, head of equity capital markets for Europe at Bank of America.

Some investors have expressed unease over signs of froth in markets, with one-day share price pops in recent IPOs, including for Airbnb prompting comparisons to both 2000 and 2007.

But John Leonard, the global head of equities at Macquarie Asset Management, said that while valuations had been elevated, they were now tied to strong revenue streams. “People aren’t trying to value things per click or per eyeball,” he added.

Institutional investors see long-term opportunities from short-term disruption, but there are risks

The most prominent sports transaction of 2020 — the $2.4bn sale of baseball’s New York Mets to hedge fund manager Steve Cohen — was both a record sum for a North American franchise and, according to money managers and sport industry executives, perhaps the beginning of the end for the era of wealthy individual ownership.

“There are very few Steve Cohens out there in the world who can afford to simply write a cheque” for a big franchise, said one investor in the sports industry. 

The coronavirus pandemic devastated global sports this year, cancelling or postponing events and virtually eliminating match-day attendance at remaining fixtures. But as leagues and franchises grasp for a financial foothold, the tumult of 2020 accelerated a nascent trend in the business of sport: the influx of institutional capital.

With a flurry of new special purpose acquisition companies and the establishment of specialised funds seeking to invest in leagues and teams, private money is shaping sport business in new ways. Private equity groups are scrambling to get a stake in media rights for European football, while US sport leagues are loosening their bylaws to allow for new forms of investment.

Underpinning the changes is the fact that valuations for both broadcast rights and individual franchises remain on an upward trajectory.

“Sports assets have shown a low correlation relative to the broader market, with teams selling for record values through the 2008 financial crisis and Covid-19,” said Michael Kenworthy, head of sports investment banking at Goldman Sachs. In some cases, he said, valuations had outperformed other traditional investment benchmarks, such as the S&P 500.

“If you’re thinking about what’s the best way to construct a portfolio and you want to diversify, there could be, potentially, merit having sports assets in that portfolio.”

Thirty-five years ago, it was possible to become a majority owner of a National Basketball Association team in the US with a few million dollars on hand, as Larry and Gail Miller did with $24m to buy the Utah Jazz in 1985-86. This autumn, the family sold its majority stake to an ownership group led by Qualtrics entrepreneur Ryan Smith for $1.6bn, more than 66 times their original investment.

“The universe of people [to buy in] is only so big,” said Mr Kenworthy. “There needs to be other mechanisms to help make them affordable and make it a bit easier for them to buy these assets.”

That thinking led to a decision by the NBA in May to amend its ownership rule book and select Dyal Capital, a unit of US asset manager Neuberger Berman, to purchase stakes in more than one team, according to three people familiar with the transaction.

Dyal was close to raising about $2bn in a new fund that would focus exclusively on buying minority stakes in NBA franchises, with an aim to buy from existing owners, many of whom acquired their portions of a team when valuations were significantly lower, two of the people said.

The move by the NBA followed a decision by Major League Baseball in 2019 to allow institutional investment in multiple clubs at once. While taken before the pandemic, the amendment to MLB’s rules “couldn’t have been more well-timed”, according to a person familiar with the league.

Changing league views on who — or what — can own franchises is also fuelling a rise in sport-related special purpose acquisition companies, or Spacs. These are listed investment vehicles sitting on a pot of cash with which to buy an existing business.

The highest-profile of these is the vehicle created by former Goldman Sachs partner Gerry Cardinale and Moneyball legend Billy Beane, who have been attempting a reverse-merger with Fenway Sports Group, holding company for two of the most valuable clubs on either side of the Atlantic. 

If successful, the RedBall Spac would result in a public listing for the company behind football team Liverpool FC and the Boston Red Sox baseball team.

“The RedBall Spac acquisition is the next step in an ongoing transition in the sports ecosystem,” said one executive now raising funds to invest in clubs. “These assets and this asset class have appreciated in scale and value to the place where they are institutional. So there’s a movement to institutional investment, and public currency is part of it.”

Of course, investing in sport is hardly without risk for institutional investors, who face questions about whether the upward trajectory on valuations will be sustained, and whether sports investments will be liquid and who they might sell to in the future.

There are plenty of idiosyncratic risks to the industry, too.

In November, CVC Capital Partners and Advent International sought to add a “breakaway” clause to their €1.6bn deal to buy a stake in media rights for Italy’s Serie A, after some of Europe’s top football clubs discussed setting up a separate, continent-wide super league.

The uncertainty could be a factor in other nascent football bids, including a move by some 20 private equity groups seeking to invest in media rights for Germany’s Bundesliga.

In the US, institutional investors will find themselves subject to the whims of league governance, since the leagues ultimately decide who is acceptable as a club owner.

The executive who is currently raising money to invest in clubs said the potential RedBall Spac deal would set a tone. “The real question with Fenway is whether MLB will approve. It’s a real risk in this circumstance. Approval changes everything.”

Discussions between RedBall and Fenway are ongoing, but there is no guarantee a deal will be reached, particularly given the current disruption.

For the 2020 season, the Red Sox are projected to take a $338m hit from the loss of ticket sales alone, according to analysis from Team Marketing Report.

“Everyone is looking to address the near-term problems of the pandemic, and one way to do that is to allow infusion of institutional capital,” said another third-party money manager, who works with both leagues and owners. 

With Covid-19 cases climbing around the world once again, combined with the fact that the rollout of vaccinations may take months, the appeal within the sports world to lure more private capital is only expected to continue into 2021.

“There’s a lot of blood on the floor here, these franchises are bleeding,” the money manager said.