The idea of Cornershop was that the supermarket came to you; you didn’t have to go to it.
That was the business idea, to be a home delivery startup, when it was founded in Chile in 2015. As a result, over the next five years, the company expanded its operations into Colombia, Mexico, Peru, Brazil, and Canada, forging business alliances. It raised more than $31 million USD in investment capital.
It soon became one of Latin America’s most promising young companies. Along with Mexico’s Clip and Kubo Financiero, according to business intelligence firm Owler. No one was surprised when, in 2018, Walmart announced its intention to buy it for $225 million USD.
The transaction was predicted to be one of the most important in Latin American entrepreneurship. But the acquisition fell through. It was not authorized by the Federal Economic Competition Commission (Cofece).
Cofece is the Mexican regulatory body that monitors and ensures open competition in national markets.
In October 2019, a new player was reported to be targeting Cornershop. Uber, the tech giant founded in the United States, wanted to acquire a majority stake in the Chilean company. The transaction was valued at $459 million USD.
“It is the perfect partner” said Oskar Hjertonsson, founder and CEO of Cornershop when announcing the Uber’s intention to merge, which has not yet materialized. The companies expected to close the deal in early 2020, but it is on hiatus.
Now, the company faces a key decision: merging with Uber after receiving Cofece approval or going bankrupt.
Setting a precedent
Since the end of 2019, the companies have been seeking authorization for their merger. Nevertheless, the process was halted because both the Federal Economic Competition Commission (Cofece) and the Federal Telecommunications Institute (IFT). They disputed who had the power to authorize its approval.
At the end of May 2020, the Collegiate Court on Administrative Matters determined that it was the Cofece and not the IFT that had the power, justifying that the operation would not impact in any way on the telecommunications sector, but rather on the product delivery market.
Nonetheless, Cofece must assess whether the acquisition will create an unfair monopoly of the applications-based goods delivery market or not. If the merger is accepted, it would mark a big achievement for the entrepreneurial ecosystem, according to investor Diego Serebrisky, co-founder of the Dalus Capital investment fund.
“The merger would demonstrate that technology startups can be acquired by larger companies. That would set a precedent, meaning that there will be more entrepreneurs interested in creating such companies and more investors willing to finance them in their early stages,” he tells Tec Review.
Working against the clock
Getting approval from Cofece has been identified as one of the biggest challenges in this type of transaction. “Excessive time taken in the competition analysis processes faced by startups in Mexico can put them at risk of bankruptcy unnecessarily. We suggest updating the legislation and calling on the competition authorities to resolve these issues promptly,” reads a statement issued by the Association of Mexican Entrepreneurs (Asem) on April 14.
“The reality is that the rhythm of the markets has gone beyond the existing regulations in the country. Small and medium-sized companies are constantly faced with regulators who are lagging behind in terms their understanding of new investment methods, the new economy, and the constant innovations to which digital platforms adapt more easily,” says Mayra Martínez, consultant for Sherlock Communications.
Five months after the announcement of Uber’s acquisition, Oskar Hjertonsson shared a message regarding the company’s situation via his Twitter account. In addition to expressing his dissatisfaction with the Mexican authorities for the time they have taken to rule on the merger, the CEO said that the Chilean company only had cash to keep itself afloat for nine more months.
“We only have nine months of cash in the bank,” he wrote. “I can’t help but feel frustrated and disappointed. Right now, our team and buyers have a hard time serving our customers. Instead of focusing on building a better company, we spend a lot of time deciding where we can make cuts because of the regulatory uncertainty we are in,” he wrote.
Tec Review requested an interview with Cornershop, to find out the current status of the company. As of the time this article was published, there had been no response.
The planned acquisition has not only been through an approval process in Mexico, it was also analyzed in Chile. But on May 29, the Chilean National Trade Agency’s Office (FNE) approved, condition-free, Uber’s acquisition of the company.
The agency studied potential risks to competition by eliminating a potential competitor, such as Rappi, in Uber’s attempt to enter the supermarket e-commerce market, but this was ruled out arguing that “supermarkets are currently strongly promoting the development of e-commerce.”
Chilean government said in a statement that the acquisition does not substantially reduce competition and consequently cannot negatively affect (in terms of access, price, quality, or quantity) the conditions of use of the supermarket service platforms, or the other markets in which they operate.
Approval of the FNE does not guarantee that the Cofece will rule in favor of the acquisition. When Walmart tried to buy Cornershop, the Chilean regulator had given the green light for the $225 million USD acquisition. The process was stopped on June 5, 2019, when Cofece decided not to authorize the merger.
In conclusion, ASEM proposes an amendment to the Federal Economic Competition Law, stipulating that a simplified and expedited merger review procedure be applied to transactions involving startups. In addition, it proposes that concentration analyses could be done once deals have been closed.