Deliveroo shares rise: Retail investors join trading

LONDON (Reuters) – Deliveroo shares opened slightly higher on Wednesday, the first day of unrestricted trading when retail investors were allowed to trade the shares bought during the food delivery group’s initial public offering (IPO).

At 0710 GMT, the stock was trading up 2.5% at 287 pence, about 25% lower than its IPO price, following a hefty first day tumble when it made its stock market debut in London last week.

Deliveroo was given an initial 7.6 billion pounds ($10.46 billion) valuation through a 390 pence price tag per share.

“Gosh, no!” UK’s Sunak says not embarrassed by Deliveroo IPO

LONDON (Reuters) – British finance minister Rishi Sunak said he was not embarrassed by the plunge in the shares of Deliveroo ROO.L in their trading debut on Wednesday, after he endorsed the company as a British success story.

Shares in food delivery service Deliveroo plunged by as much as 30%, slicing more than 2 billion pounds ($2.76 billion) off the company’s valuation in a blow to Britain’s ambitions to attract fast-growing tech companies to the London market.

The highly-anticipated listing, the biggest on the London market in a decade, had earlier been hailed by Sunak as a “true British tech success story” that could clear the way for more initial public offerings (IPO) by technology companies.

Sunak was on Wednesday asked by ITV political editor Robert Peston if he now felt embarrassed. He said: “Gosh, no… share prices go up, share prices go down. We should celebrate success in this country.”

“You talk about Deliveroo, I think I remember Facebook when it first IPO’d – I think the share price halved over the next few months, and then obviously we all know what happened after that.”

Some of Britain’s biggest investment companies shunned Deliveroo’s listing, citing concerns about gig-economy working conditions and the share structure.

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Deliveroo shares drop 30% on stock market

LONDON (Reuters) – Shares in Deliveroo plunged by as much as 30% in their trading debut on Wednesday, slicing more than 2 billion pounds off the company’s valuation in a blow to the food delivery group and the London market for initial public offerings (IPO).

The highly-anticipated listing, the biggest in the London market in a decade, had been hailed by British finance minister Rishi Sunak as a “true British tech success story” that could clear the way for more IPOs by fast-growing technology companies.

But the debut had already been overshadowed as some of Britain’s biggest investment companies shunned the listing, citing concerns about gig-economy working conditions and the share structure.

The 390 pence price tag gave an overall valuation of 7.6 billion pounds ($10.46 billion) and was already set at the bottom of an initial range.

Within minutes of the market opening on Wednesday, it lost 2.28 billion pounds of its value, which one senior equity capital markets banker said would hurt the market for initial public offerings in Britain and Europe.

“It’s an extremely painful move on one of the most anticipated IPOs of the year,” he said, asking to remain anonymous.

PANDEMIC BOOM

Deliveroo’s self-employed drivers have seen a boom in demand during the COVID-19 pandemic, bringing food from otherwise-shuttered restaurants to housebound customers.

But the Amazon-backed company has been running at a hefty loss; it said it narrowed an underlying loss to 223.7 million pounds ($308.93 million), from 317.3 million pounds in 2019.

Irrespective of profitability, there has been a clamour for growth companies over the last year as the COVID-19 crisis has sunk rates and government bond yields to all-time lows.

But with U.S. Treasury yields rising, this trade has lost allure and many tech stocks on both sides of the Atlantic have fallen in recent weeks, leading to questions over inflated valuations.

“That comes back to the issue that how could a company that was valued at 3 billion (pounds) in November, 5 billion in January, be magically worth 8-9 billion in March – particularly when according to its own statements it was potentially in need of emergency funding last year,” Russ Mould, Investment Director at AJ Bell, said.

The listing of the London-based company, founded by boss William Shu in 2013, is London’s biggest IPO since Glencore’s in May 2011 and also the biggest tech float ever on the London Stock Exchange.

The heavyweight investors who stayed away included Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G.

“The number of institutions lining up to say no on ESG (environmental, social and corporate governance) grounds always looked like it was going to make it a tricky debut,” said James Athey, investment director at Aberdeen Standard Investments.

Deliveroo eyes $10.5 billion listing after some funds steer clear

(Reuters) – Deliveroo will price its initial public offering at 390 pence per share, banks working on the deal said on Tuesday, at the bottom end of previously indicated valuations for the food delivery group.

That would indicate a valuation of 7.6 billion pounds ($10.46 billion), less than expected, after a string of major UK fund managers said they would not take part in the deal, citing concerns about its dual class share structure and its gig economy business model.

The listing is covered multiple times over, the bookrunners said, with the deal expected to close at 1200 GMT.

The listing of London-based company, founded by boss William Shu in 2013, is set to be London’s biggest IPO since Glencore’s in May 2011 and also the biggest tech float on the London Stock Exchange.

Heavyweight investors Aberdeen Standard Life, Aviva, Legal & General Investment Management and M&G have all said they will sit the deal out, amid criticism of its workers’ rights.

Some of them also question whether the loss-making business can ever justify its valuation.

Having initially looked for up to 8.8 billion pounds, the British tech firm on Monday went with a narrower price range, indicating a maximum valuation of up to 7.85 billion pounds.

Deliveroo’s self-employed drivers have seen a boom in demand during the COVID-19 pandemic, bringing food from otherwise-shuttered restaurants to housebound customers.

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Deliveroo flotation price to be at bottom of target range

Food delivery business Deliveroo has said it will price shares for its stock market listing towards the bottom of its planned range.

Deliveroo now expects to be valued at between £7.6bn and £7.85bn, whereas its original price range had indicated it could be valued at up to £8.8bn.

It said it had chosen the lower price due to “volatile” market conditions.

Last week, a number of fund managers said they would reject the listing amid concerns over workers’ rights.

‘Significant demand’

Deliveroo’s planned share sale has attracted much attention as it could be the UK’s biggest flotation for a decade.

Last week, the company it estimated a price range of between £3.90 and £4.60 per share for the float on Wednesday.

However, on Monday it trimmed the price range to between £3.90 and £4.10 per share.

In a statement, it said: “Deliveroo has received very significant demand from institutions across the globe.”

It added that the deal is covered multiple times throughout the range, “led by three highly respected anchor investors”.

Deliveroo's chief executive Will Shu
image captionDeliveroo’s chief executive, Will Shu, founded the business in 2013

But referring to “volatile global market conditions for IPOs”, Deliveroo said it was “choosing to price responsibly within the initial range and at an entry point that maximises long-term value for our new institutional and retail investors.”

The move comes after a number of US tech stocks fell below their issue prices after IPOs in recent weeks.

Fund worries

Despite the size of Deliveroo’s flotation, last week a number of leading fund managers said they would reject the listing.

Managers such as Legal & General, Aviva, Aberdeen Standard and M&G expressed concerns over workers’ rights, the company’s business model and regulatory concerns.

Rupert Krefting, head of corporate finance and stewardship at M&G, said the company’s reliance on gig-economy workers made it a risk for investors.

Deliveroo riders are self-employed, meaning they are not entitled to earn a minimum wage from the company, or holiday and sick pay.

David Cumming, chief investment officer at Aviva, warned of the risk that drivers will have to be reclassified as workers, which would entitle them to rights such as sick and holiday pay. “It’s an investment risk if the legislation changes,” he said.

One backer of takeaway delivery platforms is James Anderson, manager of the UK’s largest investment trust Scottish Mortgage.

He told The Times that he was “lukewarm” about Deliveroo because of its focus on slower-growing markets and its over-reliance on London.

“I think their model is successful in the unusual economics of London and it’s much more difficult to spread elsewhere,” he said.

Investment firms have also raised concerns over the proposed share structure, which will see founder Will Shu have 20 votes per share, compared with one per share for other investors, giving him a majority position in shareholder votes.

Deliveroo, which was founded in 2013, has said it will hand its riders bonuses of between £200 and £10,000 when it floats, depending on the number of orders they have delivered.

Trade union calls for Deliveroo UK riders strike to highlight IPO risks

LONDON (Reuters) – A trade union called for Deliveroo’s UK riders to strike when the meal delivery service floats on the stock market next month, saying on Sunday the action would highlight dissatisfaction with the company’s business model and approach to workers’ rights.

Deliveroo, whose turquoise-uniformed couriers delivering chicken kormas and American hot pizzas are a common sight in many British suburbs, is set for Britain’s biggest stock market debut in nearly a decade after setting a share price range that values it at up to $12 billion.

But some investment firms have said they will not participate in the initial public offering (IPO). Insurer Aviva for instance highlighted a lack of rights for riders as an investment risk as the company might be forced to change its business model.

Deliveroo said investor demand had continued to build since its roadshow began on Monday, and said the views of the union which announced the strike, the Independent Workers’ Union of Great Britain (IWGB), did not represent the vast majority of riders.

The IWGB previously lost a legal challenge to Deliveroo in 2018. The case sought to secure rights such as the UK minimum wage for riders, but the court ruled riders were self-employed.

“Investing in Deliveroo means associating yourself with the exploitative and unstable business model,” IWGB President Alex Marshall said in a statement, adding the strike was planned for April 7, to coincide with the IPO.

The rights of people who work in the so-called “gig economy” have been an increasing focus in Britain. Ride-hailing app Uber gave its workers more entitlements earlier this month after losing a Supreme Court case.

Deliveroo said job satisfaction levels among its 50,000 self-employed riders in Britain was at an all-time high, and that the flexibility they had was a big attraction.

“Thousands apply to work with us every week, reflecting the strong demand for our on-demand model,” a company spokeswoman said.

Investment risks: Deliveroo loses top investors

Six big UK investment firms say they will not buy Deliveroo shares after concerns over workers’ rights.

The delivery company hopes to be valued at up to £8.8bn when it lists its shares in April.

But Aberdeen Standard, Aviva Investors, BMO Global, CCLA, LGIM and M&G said they were put off by factors including the working conditions of its riders and lack of investor power.

Deliveroo said it had seen “significant demand” for stock with interest rising.

“We look forward to welcoming new shareholders next week alongside our currently highly respected existing investors,” it added.

Deliveroo riders are self-employed, meaning they are not entitled to earn a minimum wage from the company, or holiday and sick pay.

‘Time bomb’

Rupert Krefting, head of corporate finance and stewardship at M&G, said the company’s reliance on gig-economy workers made it a risk for investors.

He pointed out that Uber had recently had greater legal rights enforced by the Supreme Court for drivers previously categorised as self-employed.

“Deliveroo’s narrow profit margins could be at risk if it is required to change its rider benefits to catch up with peers,” Mr Krefting added.

Legal & General Investment Management (LGIM) said it was put off by an “unequal voting rights” structure.

Deliveroo is planning to let its founder and chief executive Will Shu have more than 50% of shareholder voting rights.

“It is important to protect minority and end-investors against potential poor management behaviour, that could lead to value destruction and avoidable investor loss,” LGIM said.

Phil Webster, a portfolio manager at BMO, said labour issues represented a “ticking bomb on the side” for Deliveroo, which contributed to making it “uninvestable”.

Andrew Millington, head of UK Equities at Aberdeen Standard, told the BBC’s Today programme that the conditions were a “red flag”, adding: “We wouldn’t be comfortable that the way in which its workforce is employed is sustainable.”

He compared Aberdeen Standard’s recent decision to sell off Boohoo shares, following allegations of worker exploitation at suppliers to the online clothing company.

Large institutional investors such as Aberdeen Standard can use their financial muscle to try to influence the way firms are run – such as through relationships with managers and shareholder votes.

But Mr Millington said that sometimes “disinvesting or not investing in the first place is our only option”.

He added that it would be interesting to see whether Deliveroo can attract investors over the longer term “without making progress” on worker rights.

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Analysis box by Dominic O'Connell, business correspondent

One of the biggest-ever floats on the London market of a home-grown technology company should have meant a feeding frenzy among the City’s institutional investors, the companies that have the job of putting trillions of pounds of retail and pension investors money to work. 

For years they have watched with envy as their US counterparts have put cash into a steady stream of technology companies.

Not all have been big hits after listing their shares on public markets, but enough of them have been – think Apple, Alphabet, Amazon, Tesla and a string of others – to have made it a big source of investment returns. Deliveroo’s listing, which could value the company at just short of £9bn, should have been a rare similar opportunity on the London market.

Instead some big players, including Aviva Investors and Aberdeen Standard, are turning their backs, saying the way the company employs its riders is not socially acceptable, and poses a risk to its future.

Deliveroo deems its riders to be self-employed, and points out that the High Court has upheld that view. What is more, Deliveroo says its riders value the flexibility that employment status gives them, although it is worth noting that Uber maintained the same thing until it eventually decided its drivers were in fact workers, not self-employed contractors.

There is no danger to Deliveroo’s float – there are enough investors around who are happy to buy the shares. The buying strike by large investors could have ramifications well beyond one company, however. Does this mean that all gig economy companies are off limits? Does it signal that all companies on the London market will now have to ensure their worldwide organisations meet the best employment standards?

Andrew Millington of Aberdeen Standard told the Today programme that would be the battle to come – that his firm would hold on to a company’s shares as long as it was moving in the right directions, and paid proper attention to employment standards. That is a subtle warning to boardrooms that they will in future be judged by the way their treat their most junior staff.

David Cumming, chief investment officer at Aviva, said investors were taking social responsibilities “a lot more seriously”.

“A lot of employers could make a massive difference to workers’ lives if they guaranteed working hours or a living wage, and how companies behave is becoming more important.”

A report by the Bureau of Investigative Journalism (BIJ) – based on thousands of invoices from 300 Deliveroo riders – claims that one in three is earning less than the National Living Wage, which is currently £8.72 an hour.

However, Deliveroo said the sample of 300 people was “not a meaningful or representative proportion” of their riders and that they can earn up to £13 an hour “at our busiest times”.

“These findings [by the BIJ] raise concerns,” said Tom Powdrill, head of stewardship at shareholder lobby group Pirc. “Investors considering taking a position in Deliveroo should familiarise themselves with these matters and the risks and responsibilities involved along with all other relevant factors.”

Investment risk

Mr Cumming also warned of the risk that drivers will have to be reclassified as workers, which would entitle them to rights such as sick and holiday pay. 

“It’s an investment risk if the legislation changes,” said Mr Cumming. 

Uber recently reclassified its drivers as workers after a landmark UK supreme court case last month.

Deliveroo's chief executive Will Shu
image captionDeliveroo’s chief executive, Will Shu, founded the business in 2013

Since losing a five-year legal battle with drivers who claimed it had wrongly classified their employment status, Uber has offered holiday pay, a guaranteed minimum wage, and pensions benefits to its drivers.

Other gig economy companies have been looking closely at the Supreme Court’s verdict in February, although it does not directly apply to Uber Eats – the food delivery arm of the business.

‘Punctured profits’

Deliveroo has set aside more than £112m to cover potential legal costs relating to the employment status of its delivery riders.

It warned potential investors of the risk of litigation around the world in documents setting out its plans for a stock market debut published on Monday.

“The European Commission is set to draw up new legislation governing how the gig economy model works across the bloc,” pointed out Susannah Streeter, an analyst at Hargreaves Lansdown.

“If Deliveroo is forced to change the way it classifies its riders in the future, it is likely to puncture its profits prospects, and could even derail the delivery giant.”

Deliveroo, which was founded in 2013, has said it will hand its riders bonuses of between £200 and £10,000 when it floats, depending on the number of orders they have delivered.

Deliveroo eyes $12 billion market cap in upcoming IPO

LONDON (Reuters) – Food delivery company Deliveroo could make Britain’s biggest stock market debut since commodities giant Glencore went public nearly a decade ago, after setting a price range on Monday that values it at up to $12 billion.

The Amazon-backed food delivery firm has been held up by the British government as a sign the City of London can still attract major Initial Public Offerings (IPO) following the United Kingdom’s exit from the European Union.

It is set to be London’s biggest IPO since Glencore in May 2011, according to data provided by the London Stock Exchange.

A London stock market listing by Allied Irish Banks in 2017 is excluded from the data as it had a small listing in Ireland at the time.

Deliveroo will also be the biggest tech IPO on the LSE, dwarfing The Hut Group from last year — which had a 5.4 billion pound market capitalisation at time of listing — and the since-delisted Worldpay Group from 2015.

The company has benefited from the closure of restaurants for anything other than takeaways during the COVID-19 crisis and revenues have soared accordingly, with so-called gross transaction value – which measures the total value of orders received – rising 64.3% in 2020 to 4.1 billion pounds.

But it faces questions on whether that momentum will continue after COVID-19 restrictions are eased and be enough to turn the business towards profit after it posted an underlying loss of 223.7 million pounds ($308.93 million) last year.

“Deliveroo has clearly had a Covid boost,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

“Although this insatiable demand for takeout food isn’t likely to fully unravel, there is inevitably going to be a drop in demand as diners seize the opportunity to book tables at their favourite eateries when restrictions do ease.”

PRICE RANGE

Deliveroo said it had set a price range for its listing of between 3.90 and 4.60 pounds per share which will give it a market value of between 7.6 billion pounds and 8.8 billion pounds ($10-5 billion and $12 billion), excluding any shares offered as part of an over-allotment issue.

An announcement to investors seen by Reuters said that the deal size would be 1.5-1.6 billion pounds, rising to 1.7 billion pounds after the over-allotment of shares.

Of this, new shares will raise 1 billion pounds for the company and the rest will be made up by existing shareholders selling part of their stake.

Deliveroo has opted not to pursue a premium listing — ruling it out of inclusion in the FTSE indices — which allows founder and chief executive Will Shu to retain enhanced shareholder rights.

In a short trading update, Deliveroo added that the total gross transaction value on its platform was up 121% in January and February this year compared to the same period in 2020.

“We have seen a strong start to 2021 and we are only at the start of an exciting journey in a large, fast-growing online food delivery market, with a huge opportunity ahead,” Shu said in a statement.

JP Morgan and Goldman Sachs are global coordinators and bookrunners along with Bank of America, Citi, Jefferies and Numis.

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Exclusive – Deliveroo aims to sell $1.4 billion of new shares – IPO

LONDON – British food delivery company Deliveroo said on Monday that it plans to sell around 1 billion pounds ($1.39 billion)of new shares in its upcoming initial public offering.

The company, which is backed by Amazon, said its listing will also include the sale of shares by some existing shareholders.

Deliveroo confirmed that it will have two classes of shares, with founder and chief executive Will Shu to be the sole holder of “class B” stock which will give each of his shares 20 votes, whilst all other shares will carry one vote.

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Deliveroo boss Will Shu: ‘I was never into start-ups’

“I never set out to be a founder or a CEO. I was never into start-ups,” says Will Shu, founder of food delivery chain, Deliveroo.

The firm, founded in 2013, is now planning to issue shares to the public which could value it at $7bn (£5bn)

Deliveroo has not yet made a profit and it reported a £223.7m loss for last year, despite a surge in sales.

The float will see the busiest riders share in a £16m fund, and customers will also get the chance to buy shares.

They will be given the chance to buy up to £1,000 worth of shares each in the firm, although if demand if high they may see their orders scaled back.

Mr Shu’s letter, contained in the official notice of the intention to float, also says: “I’m not one of those Silicon Valley types with a million ideas. I had one idea.

“At the end of the day, I started the business because I wanted something better than what was available to me.”

Deliveroo driver

Deliveroo said that last year, its gross transaction value – the total amount of transactions it processes on its platform – jumped by 64.3% to £4.1bn from £2.5bn in 2019.

However, the business remains loss-making, although its underlying loss for 2020 reduced to £223.7m from £317.3m in 2019.

Demand for takeaway meals has soared during the coronavirus pandemic, after lockdown measures were first implemented a year ago and restaurants have been forced to close. 

Restrictions on hospitality businesses in England are currently set to start to ease on 12 April at the earliest.

As part of the flotation, riders in Deliveroo’s 12 markets who have worked with the firm for at least a year will be paid a bonus of either £10,000, £1,000, £500 and £200 depending on the number of orders they have delivered.

Deliveroo also said it would make £50m worth of shares available to customers who would be able to register their interest via the company’s app.

Share structure

The shares will be listed on the London Stock Exchange, where Will Shu is planning to maintain a firmer grip on how the company is run than has been traditional for London-listed companies.

Under a proposed dual-class share structure, each share Mr Shu will hold will carry 20 times the voting power of ordinary shares.

A recent government-commissioned review of the UK’s listing rules recommended a number of measures to make the country a more attractive place for companies to float.

The review, led by former European Commissioner Lord Hill, recommended allowing different classes of shares with differential voting rights.

Major tech companies such as Facebook and Google-owner Alphabet have so called dual-class shares.