Road to nowhere

What a week for fast-food delivery service Deliveroo. With its much-awaited IPO this week more and more asset managers have stepped out to announce their refusal to participate in the offering.
In a boycott that has forced the delivery company to set the final price at the bottom of its initial range which values Deliveroo at £1.3bn less than the top end of its original expectations, some of asset management’s biggest names have cited the food delivery company’s questionable labour practices as a reason to steer clear. Aviva, Legal & General, Aberdeen Standard, M&G, Rathbones, Jupiter, BMO and CCLA are among the institutions refusing to purchase shares, which are priced at £3.90 each, well below original forecasts.
Reasons for ducking the Deliveroo IPO are varied. Partly it’s a simple question of how successful the business is likely to be. It’s also being shunned due to its treatment of riders who are generally employed on a gig-basis leaving them unentitled to basic benefits. This has two aspects to it. On the one hand some investors may find the employment model too much on its own terms. But it’s also a risk. If Deliveroo is successfully legally challenged on employment status the economics change too, as we saw recently with Uber.
The company has made life more complicated by insisting on a dual share class structure, which many asset managers hate since it effectively robs them of their shareholder influence. So not only do fund managers have misgivings about governance, if they invested under this structure, they wouldn’t even be able to do much about things they don’t like until the structure expires.
If dual class shares spread it’s a particular problem for the passive managers who are currently sweeping all before them. Tracking an index means that ‘exit’ is already off the table as a response to companies that are problematic on ESG grounds. But if companies adopt differential voting rights this stifles ‘voice’ too. It’s unclear how the government, which is promoting dual class share structures, expects investor stewardship to work under these conditions.
Deliveroo argues that its share price is lower than expected because of ‘volatile global market conditions’, but it is hard to ignore the fact the company still isn’t profitable despite being in one of the few sectors to benefit from lockdown conditions. The future may not be as promising for a food delivery company operating in a country whose inhabitants have been newly released from their homes.
Deliveroo also says that the IPO is fully subscribed and has the support of three anchor investors. That’s something of a hospital pass. Given that the IPO, and the obvious social and governance issues attached to it, has been all over the media for days now, it will be interesting to see if any of these three investors try and market themselves on ESG grounds. Because they are inevitably going to get challenged.
All this will no doubt prove embarrassing for the government which has been particularly accommodating to Deliveroo in the hope that its listing will prove the start of a tech boom in Britain. The Chancellor puffed up the IPO presumably in the expectation it would be a positive story about UK success. Instead it has turned into a tale of an unprecedented capital strike by much of the City concerned about problematic governance and employment practices. Shame he didn’t get what he ordered.

Leave a Reply

Your email address will not be published. Required fields are marked *