Deliveroo announces it will target lower stock market valuation of around £7.85billion instead of £8.8bn due to ‘volatile’ market after investor concerns over worker rights
- Food delivery giant cited ‘volatile’ market conditions as reason for price decision
- Price will be announced on Wednesday and will range between £3.90 and £4.10
- Lower stock price means company valued between £7.6 billion and £7.85 billion
- Deliveroo says it has received ‘very significant demand’ from across the globe
- It comes after leading fund managers said they will reject listing amid concerns over workers’ rights and the firm’s share structure as well as regulatory concerns
Deliveroo has said it will price shares for its highly anticipated stock market listing towards the bottom of its price range due to ‘volatile’ market conditions.
It comes after a week in which a raft of leading fund managers said they will reject the listing – which could be the UK’s biggest for a decade – amid concerns over workers’ rights.
The takeaway delivery firm is set to announce its final pricing on Wednesday morning but has narrowed its share price range to between £3.90 and £4.10 per share.
Deliveroo is set to confirm its float offer price on Wednesday (Mikael Buck/Deliveroo/PA)
Deliveroo is allowing anyone to apply to buy shares in multiples of £250 in a deal that is expected to make the company’s founder Will Shu, 41, who was also its first delivery rider, approaching £500million.
Last week, the company said it intended to offer a range of between £3.90 and £4.60 per share, which could have potentially valued the business up to £8.8 billion.
It said it now expects it will be valued at between £7.6 billion and £7.85 billion.
The decision to offer towards the end of its price range comes after a number of US tech stocks fell below their issue prices after initial public offerings (IPOs) in recent weeks.
A Deliveroo spokesman said: ‘Deliveroo has received very significant demand from institutions across the globe.
The Deliveroo launch on the London Stock Exchange is set to make its geeky founder Will Shu as much as £430million. His idea was born while he worked for JP Morgan in Canary Wharf.
The food obsessed 41-year-old said he wandered around the financial district at night during long shifts wanting restaurant food, but always ended up going to Tesco, the only thing left open.
He then started the business with a tech friend, who helped him build the app in 2013, and they set up in a ‘death trap’ office in Marylebone shared with a company called ISIS and cable channel Gem TV (pictured).
The laid back and shy businessman was also known for his scruffy clothes. One colleague said: ‘He may have been the only founder who pitched us wearing shorts.
‘He wore shorts for the first four years I worked with him, regardless of the weather or the occasion.’
Deliveroo will sell around £1bn of new shares next week.
Mr Shu, and his family who also backed it at the beginning, could now be worth £550m.
‘The deal is covered multiple times throughout the range, led by three highly respected anchor investors.
‘Given volatile global market conditions for IPOs, Deliveroo is 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.’
Last week, some of the UK’s largest fund managers, including Legal & General and Aviva, said they would reject the flotation, highlighting issues related to its business model, workers’ rights, regulatory concerns and the company’s recent losses.
By Friday, GIM, Aberdeen Standard, Aviva Investors, BMO Global, CCLA and M&G had all said they do not plan to invest in the takeaway delivery operator.
For all the excitement about Deliveroo, the fact remains that the company has yet to turn a profit — even during lockdown.
But that hasn’t stopped private money from pouring in, however, with the company raising more than £1billion in recent years.
Andrew Millington, head of UK Equities at Aberdeen Standard, told the BBC’s Today programme that the conditions for Deliveroo staff is considered a ‘red flag’, adding: ‘We wouldn’t be comfortable that the way in which its workforce is employed is sustainable.’
He said they had recently sold off shares in Boohoo after it emerged their suppliers were using sweatshops in Leicester during lockdown.
David Cumming, chief investment officer at Aviva, told the Today programme that social responsibilities are now taken ‘a lot more seriously’ by investors.
He said: ‘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.’
Graft: Deliveroo founder Will Shu worked as the company’s first delivery driver to ensure he knew exactly what people wanted from his company – and is set to make millions from the float
Deliveroo says its business model gives riders ‘freedom’ to choose their hours, but that also means that they are self-employed and not entitled to the minimum wage from the company, or holiday and sick pay.
The business, one of many using this model, is facing court action from staff, which could change the rights of staff.
Last week Uber announced its UK drivers would become its first globally to be paid both a minimum wage and holiday pay.
Uber will also offer drivers paid holiday time and enrol them into a pension plan as they become classified as workers, not independent contractors.
Deliveroo said last week it is targeting a valuation between £7.6 bn and £8.8 bn in the London Stock Exchange listing but has since lowered its target to between £7.6 bn and £7.85 bn
The announcement followed a ruling by the Supreme Court last month that Uber drivers were entitled to the benefits.
A number of the investors who said they will not buy shares have also raised concerns over the company’s proposed shareholder structure.
Deliveroo has said it plans a share structure which will mean that votes by its founder, Will Shu, will be worth 20 times more per share than other investors when the firm takes votes on major decisions.
The move will give Mr Shu, who founded the business in London in 2013, more than 50 per cent of shareholder voting rights.
L&G IM raised concerns over this ‘unequal voting structure’.
The fund manager said: ‘It is important to protect minority and end-investors against potential poor management behaviour, that could lead to value destruction and avoidable investor loss.’
As one of the best-known takeaway apps in the UK, Deliveroo has thrived during the pandemic
How will the Deliveroo share launch work?
Under the proposed listing, Deliveroo’s shares will have two classes.
Shu will have so-called Class B shares that carry 20 votes per share versus the one each carried by normal Class A shares.
But the company has said that dual structure – used by many tech firms in the US to preserve the control of their founders – will only be in place for three years.
The float was announced just days after the Government committed to changing the current rules in the favour of founders.
Documents published for the upcoming float reveal that Deliveroo has also set aside more than £112m to cover potential legal costs relating to the employment status of its riders.
Deliveroo works with 100,000 delivery riders across the world, who it argues are self-employed contractors rather than employees who would receive benefits such as holiday pay.
Earlier this month, the firm posted losses of £223.7m for 2020, despite surging sales amid lockdown restrictions.
The company said it saw transactions rocket by 64pc to £4.1bn in 2020 as the pandemic helped to spark increased takeaway demand.
It said that more than six million people order through the 115,000 restaurants, cafes and stores on its platform each month.
M&G’s head of corporate finance and stewardship, Rupert Krefting, raised concerns over its reliance on gig economy workers, saying this presented a risk to ‘the sustainability of its business model’.
The FTSE is poised for its biggest company float in a decade next week, as Deliveroo joins the stock exchange.
Depending on the final share price, the restaurant takeaway delivery giant could be valued at as much as £9billion.
Its debut will be a big moment for the London Stock Exchange, which has been starved of tech talent in recent years.
It will mean a significant windfall, too, for the company’s founder, Will Shu, a 41-year-old London-based American former banker.
He worked as Deliveroo’s first delivery driver to ensure he knew exactly what people wanted from his company, and now stands to make more than £300 million when it goes public.
Meanwhile, his friends and family who invested in Deliveroo in 2013 could make a 60,000 per cent return.
As one of the best-known takeaway apps in Britain, Deliveroo has thrived throughout the pandemic.
It will be hoping our growing appetite for restaurant takeaway will hold up — even when we can finally dine out again.
Deliveroo’s IPO (Initial Public Offering) comes during a period of soul-searching for the gig economy.
Like many similar companies, Deliveroo operates an ultra-flexible model through which self-employed workers are paid per drop-off, rather than for the time they are actually available to work.
Whatever the merits of this model, there’s no doubt that it’s coming under increased scrutiny.
Just last month, the UK Supreme Court issued a landmark ruling that Uber’s taxi-drivers should be classed as ‘workers’, with entitlement to minimum wage and holiday pay.
And although this doesn’t affect Deliveroo (or Uber Eats), things may change in the future — and quickly.
Unlike with many IPOs, its founder has ensured ordinary investors are given the chance to purchase pre-market shares.
Existing customers have been invited to express their interest in the IPO through the Deliveroo app.
They can then look to buy shares worth thousands of pounds at a price likely to be between £3.90 and £4.60 each.
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