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Deliveroo shaves $1.3bn off value as investors revolt
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Deliveroo shaves $1.3bn off value as investors revolt

3 min. 29.03.2021
Deliveroo set new guidance of £3.90 (€4.57) to £4.10 (€4.8) a share, according to Bloomberg
A Deliveroo driver in London, UK
A Deliveroo driver in London, UK
Photo credit: Shutterstock

Food-delivery startup Deliveroo Holdings Plc cut the upper valuation target in its London initial public offering by about £950 million (€1.1 billion), after some institutional investors balked at the company’s treatment of riders.

Deliveroo set new guidance of £3.90 (€4.57) to £4.10 (€4.8) a share, according to deal terms seen by Bloomberg. The company initially marketed the offering at £3.90 to £4.60, valuing it at as much as £8.8 billion (€10.3 billion). A Deliveroo spokesperson said the adjustment lowered the top end of the valuation target to £7.85 billion.

Some of the UK’s biggest asset managers said last week they’re concerned the London-based company’s treatment of couriers isn’t aligned with socially responsible investing practices. Hundreds of riders are expected to refuse to make deliveries when the shares begin trading on Wednesday. Some investors also have expressed concern that the company’s dual-class voting structure is counter to good corporate governance.

“At the bottom of the range, Deliveroo’s value seems to balance the risks and rewards from the hard work it has to do over the near term,” said Patrick Basiewicz, an analyst at UK broker finnCap. “We do not expect it to be easy.”

Deliveroo said in its IPO prospectus that its business “would be adversely affected if our rider model or approach to rider status and our operating practices were successfully challenged or if changes in law require us to reclassify our riders as employees.”

Such challenges are gaining ground. Uber Technologies Inc., which runs the competing Uber Eats service, said this month it will reclassify its 70,000 UK drivers as workers, entitling them to the minimum wage and vacation pay. The announcement came after it lost a landmark ruling in the country’s Supreme Court in February.

Market Snags

There are also signs investors are less willing to swallow elevated valuations for online service providers in London. Last week, Danish consumer-review site Trustpilot Group Plc erased gains of as much as 16% in its debut session. The stock is still trading in line with the IPO offer price.

“Deliveroo has received very significant demand from institutions across the globe,” a Deliveroo spokesperson said Monday, adding that there is demand for the offering, multiple times over, throughout the price range led by three anchor investors. The spokesperson didn’t identify them.

Banks will take investor orders through Tuesday, with trading set to start the next day. The sale totalled as much as £1.77 billion (€2.01 billion) based on the original price range, with £1 billion (€1.17 billion) of proceeds for the company and the rest of the offering coming from investors including Amazon.com Inc.

“By narrowing its target range, Deliveroo is trying to make sure it doesn’t hit a bump in the road as it begins its journey on the stock market,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown Plc. “Clearly Deliveroo, already facing criticism over the working conditions of its riders, doesn’t want to puncture the prospects of a successful launch.”

Deliveroo is giving founder and Chief Executive Officer Will Shu voting control for three years to provide him with the stability to execute long-term plans, the company has said.

Such dual-class structures, which are common in the U.S. and let founders keep control even after an IPO, have triggered a debate in Britain. A UK government-backed report this month recommended allowing companies to use such a setup on the premium segment of the London Stock Exchange, where they’re currently not permitted.

“Given volatile global market conditions for IPOs, Deliveroo is choosing to price responsibly within the initial range and at an entry point that maximizes long-term value for our new institutional and retail investors,” the spokesperson said.

Goldman Sachs Group Inc. and JPMorgan Chase & Co. are joint global coordinators on the offering, while Bank of America Corp., Citigroup Inc., Jefferies and Numis Securities Ltd. are joint bookrunners.

©2021 Bloomberg L.P.