Takeaway.com Pushes the Limits of SoftBank's Approach

(Bloomberg Opinion) -- It’s a move straight out of the SoftBank Group Corp. playbook. Takeaway.com NV is acquiring the German businesses of Delivery Hero SE for 930 million euros ($1 billion).

The deal between the two food delivery app giants puts an end to a costly price war in Germany, and frees up cash for Delivery Hero to invest in other markets. It’s exactly the sort of compromise that SoftBank’s Vision Fund has been encouraging its portfolio of companies to make.

The structure, which will give Delivery Hero 508 million euros in cash and an 18 percent stake in its Dutch rival, echoes the way Uber Technologies Inc. sold its southeast Asian operations to Grab. That deal gave Uber a 27.5 percent stake in Grab, while ending a debilitating ridehailing price war in the region. SoftBank is the biggest investor in both firms. It hasn’t invested in Delivery Hero or Takeaway.com.

SoftBank’s approach could come under pressure as regulators grapple with how to deal with consolidation in the gig economy. They don’t want to kill startups at birth. But they also shouldn’t want to hand any one firm dominant market share, in case that paves the way for a large monopoly to develop as these new companies grow.

Like ridehailing, the food delivery market is still relatively small in Europe, so it’s harder for regulators to oppose consolidation. The companies concerned can show that their share of the overall market is trivial. At 30 billion euros, delivery spending represents just 1.5 percent of overall food consumption in Europe, according to market intelligence firm Dealroom.

For that reason, Delivery Hero Chief Executive Officer Niklas Oestberg told journalists he doesn’t think that the deal will encounter any regulatory pushback. The combined size of the two firms makes them too small to trigger a European investigation of the deal, but it’s likely to encounter scrutiny from Germany’s Bundeskartellamt.

The combined business had German revenue of just 136 million euros in the first nine months of 2018. But as the market grows, the new company's dominance could give it outsized power. The regulator should at least consider forcing Delivery Hero to sell one of its brands to a third party – an August 2017 study from Dalia Research showed that Takeaway.com and Delivery Hero were responsible for 98 percent of all food delivery orders in Germany. Although it’s probable that Deliveroo, which accounted for the rest, has grown its share in the intervening 16 months, it’s still piffling in size compared to the new entity.

While the companies only refer to the 60 million-euro cost synergies, and the end of a price war, there will also be significant network effects which make life even harder for competitors. The combined roster of restaurants and deliverers become a major buttress against competition.

This is a deal that that regulators should scrutinize carefully. Their approach could set a precedent for waves of further consolidation in the gig economy.

To contact the editor responsible for this story: Jennifer Ryan at jryan13@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Alex Webb is a Bloomberg Opinion columnist covering Europe's technology, media and communications industries. He previously covered Apple and other technology companies for Bloomberg News in San Francisco.

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