Dive of a debut for Deliveroo

Dive of a debut for Deliveroo​

The Story

Food delivery service Deliveroo faced a highly disappointing stock market debut on the London Stock Exchange (“LSE”) last Wednesday. Shares dropped 26 per cent on the first day of trading, wiping more than £2 billion off the company’s value (Financial Times). This comes after Deliveroo had set a comparatively low share price of 390p to account for challenging market conditions.

There are a number of reasons cited for the poor performance. Firstly, floating just before many large institutional investors' first quarterly reports on performance were due was considered poor timing.

Secondly, there was unease from some investors around Deliveroo’s dual-class share structure. This structure provides for two or more classes of shares with different voting rights. Typically, company executives get greater control and voting rights while the public are offered a class of shares with little or no voting rights.

However, under UK Listing Rules, a dual class share structure cannot be permitted for a premium listing (the most regulated and renowned section of the LSE) which provides access to the FTSE 100 and access to a number of passive index funds. In this case, co-founder and chief executive Will Shu retained 57 per cent of the voting rights and Deliveroo was admitted to the Main Market as opposed to premium segment (Financial Times).

Lastly, with hundreds of Deliveroo couriers planning a protest this week to lobby for better pay and conditions, increased employment disputes and the rising cost of regulation clearly weakened investor sentiment (Bloomberg).

What It Means For Businesses And Law Firms

While undoubtedly disappointing for Deliveroo, the LSE’s confidence to attract high-growth company listings has been dented. The US has been particularly popular for SPAC (Special Purpose Acquisition Companies) listings and competition with Euronext in Amsterdam continues.

A government-backed review has set out a number of proposals to make London listings more attractive, such as relaxing rules on dual-class share structures on premium listings and decreasing the minimum amount of shares that have to be in public hands to list from 25 per cent to 15 per cent. Such proposals have led to concerns around the maintenance of high corporate governance standards on the LSE and in particular investor protections for minority shareholders.

For other businesses hoping to avoid the same fate as Deliveroo when fundraising, the importance of corporate social responsibility and ethical employment practices may be reconsidered. Legal & General Investment Management reported that they would not buy Deliveroo’s stock, which was in part due to employment concerns, while Uber suffered reputational damage in a Supreme Court ruling this year that found couriers must be treated as workers and not self-employed (Bloomberg; The Economist).

Latham & Watkins corporate, employment, data protection and tax lawyers advised the joint global coordinators J.P Morgan and Goldman Sachs, the joint bookrunners, and the underwriters on Deliveroo’s IPO (Latham & Watkins; LSE). While Legal Week reported that Deliveroo enlisted Freshfields to advise on its listing. (Legal Week)

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