By Hyunjoo Jin, Heekyong Yang and Ludwig Burger
SEOUL/FRANKFURT (Reuters) - Germany's Delivery Hero agreed a $4 billion deal to buy South Korea's top food delivery app owner Woowa Brothers, ratcheting up consolidation in the industry as it expands in Asia's fast-growing but crowded market.
The deal, announced on Friday by Woowa, follows a wave of others in the rapidly expanding sector but is the biggest so far. Woowa said it fell into the arms of its rival as "a survival strategy" in an intensely competitive market.
For Delivery Hero, now worth over 11 billion euros ($12 billion) after listing at a value of 4.4 billion euros two and a half years ago, buying Woowa expands its presence in Asia as Europe becomes more competitive. Its shares leapt 18.9% to a record 59.64 euros apiece.
Analysts at Barclays said that given the gross merchandise value it acquired, Delivery Hero had agreed "a good price for an asset that gives DH clear leadership in a very attractive market".
Profitability in Korea should also ease concerns by some investors over the company's cash burn rate, they said.
South Korea, with a dense population and high smartphone use, is the world's fourth biggest market for online food orders. A huge jump in the number of single people living on their own has propelled the boom in food delivery services.
Delivery Hero's Yogiyo app ranks second behind Woowa's Baedal Minjok in South Korea, but the sector leader faces stiff competition from rivals such as e-commerce firm Coupang, backed by Japan's deep-pocketed SoftBank Group.
"The (food) delivery market has been flooded with gigantic Japan-backed capital and influential online platforms, leading Woowa to factor in partnership as a survival strategy," said a spokesman at Woowa Brothers.
Uber Technologies Inc's UberEats restaurant delivery business pulled out of South Korea earlier this year.
Delivery Hero CEO Niklas Oestberg said in an analyst call he expects no major antitrust hurdles to the deal, citing keen competition by players including Coupang.
South Korea's online market for food delivery and pickup has more than doubled over the past five years to $5.9 billion - bigger than Japan and Germany's markets combined, and trailing only China, the United States and the United Kingdom, Euromonitor data showed. Euromonitor expects the South Korean market to jump to $9 billion by 2023.
Delivery Hero's Oestberg said he would commit new resources to Woowa to enable it to hold its own and expand.
"We fully support Woowa Brothers to continue making investments and innovate for the benefit of the wider industry participants, including consumers, restaurants, employees and riders," Oestberg said in a statement.
The initial transaction is expected to close in the second half of next year, giving Delivery Hero an 88% stake in Woowa with the remaining 12% held by Woowa management, which will be swapped for Delivery Hero shares over the next four years.
Delivery Hero said it expected to achieve 100% ownership in Woowa over time for about 1.7 billion euros ($1.9 billion) in cash and 1.9 billion euros in shares based on a 20-day average share price of 47.47 euros.
Woowa's exiting investors include Goldman Sachs, Singapore fund GIC, Hillhouse Capital and Sequoia Capital.
Established in 2010 as a food delivery firm, Woowa Brothers - 'woowa' means elegant in Korean - grew fast to become the country's top online food delivery services firm, taking over 30 million orders per month, and expanded into the business of providing shared kitchen space for restaurateurs as well as moving into Vietnam.
Founder and Chief Executive Officer Kim Bong-jin, 43, will head up a newly formed joint venture with Delivery Hero, based in Singapore. Regional players like Singapore-based Grab and Indonesia's Gojek are already well implanted.
Analysts said Woowa and Delivery Hero will be able to build up prominence in Southeast Asia, but Woowa needs to map out a more localised agenda to have a chance of success.
"While Woowa Brothers has been expanding in South Korea as a local company with a kitsch marketing strategy which exactly suits South Korean taste, it will be necessary for the firm to have more local views and strategies which suit Southeast Asian consumers," said Jade Lee, an analyst at research firm Euromonitor.
The growing global food delivery trade has triggered dealmaking, stock market listings and rising valuations.
The purchase of British-based Just Eat is set to top the Delivery Hero-Woowa deal: Dutch firm Takeaway.com is in talks to buy Just Eat in a transaction that values the latter at 4.3 billion pounds ($5.52 billion), an offer that Dutch-based technology group Prosus recently topped..
Delivery Hero sold its German food delivery businesses to Takeaway.com last year in exchange for cash and an equity stake in the buyer.
($1 = 0.9073 euros)
($1 = 0.9073 euros)
(Reporting by Hyunjoo Jin and Heekyong Yang in Seoul; Additional reporting by Ludwig Burger in Frankfurt; Sayantani Ghosh and Miyoung Kim in Singapore; Editing by Christopher Cushing and Elaine Hardcastle)