M&A-target user bases may trigger review by FTC

Korea’s antitrust agency may tighten scrutiny of small-company acquisitions following accusations that major digital players like Kakao have grown too fast and have used the purchase of start-ups to grow under the radar.
 
The Fair Trade Commission (FTC) may soon take into account user bases, transaction sizes and revenues when determining whether a review is necessary.
 
At present, a deal is subject to the extra scrutiny if one party has 300 billion won ($253 million) in assets or sales and the other party has 30 billion won in assets or sales.  
 
Under proposed rules, the FTC will require a filing for the review if a target company has monthly active users of over 1 million and is being sold for 600 billion won or more, according to multiple media reports.  
 
The change cited by the reports is tentative as the agency will initiate research for the change in the rule, starting early next year.  
“If [the FTC] reforms the standard in a hasty manner, that could result in stiffening the market, although the mergers among companies could foster innovation and benefit consumers,” said a source at the FTC.  
“We will closely refer to overseas cases as we work on changing the rule,” the source said.  
 
The move is taking aim at tech companies with appetites for start-ups since many of the start-ups tend to claim large user bases on relatively small revenue.  
 
In this way, larger companies have been able to avoid antitrust reviews.
 
The company at the center of the criticism is Kakao, which operates the Kakao Talk instant messaging app. The company had 118 local subsidiaries and other related companies as of May this year, making it No. 2 in number of such corporate relationships. In 2017, it had 67.
 
In terms of assets, it is No. 18, a discrepancy that has caught the attention of regulators.  
 
Naver has 45 subsidiaries or related companies.
 
The antitrust body will also issue guidelines next month detailing unfair business practices by these technology companies. 
 
In the guidelines, the FTC will release rules and remedies.
 
One of the most common anticompetitive practices found is displaying products or services offered by the company or related companies high in searches.  Naver was hit with a 26.7 billion won fine last year for favoring content from those with which it has a business relationship.  
 
Naver appealed the ruling, saying that it "fundamentally interferes with its business activities.” A hearing is scheduled for Nov. 3.
 
The FTC reportedly started an on-site probe of Kakao last week over allegations that it abused its dominant market position to hold copyrights of some web novels.