Legal and General Joins Investors to Avoid Deliveroo IPO

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Legal and General Joins Investors to Avoid Deliveroo IPO


The UK’s largest fund manager has become the latest major investor to announce that it plans to skip Deliveroo’s initial public offering next week as backlash escalates against its two-class equity structure and its treatment of workers.

Legal and General Investment Management, which oversees £ 1.3 billion of assets, told the Financial Times that it was “unlikely to participate” in the IPO, either in its active or passive portfolios.

A number of large institutional investors have expressed concerns about the proposed shareholding structure, which will give the founder of Deliveroo increased voting power. Some also see potential regulatory risk as governments around the world take a closer look at the model of the odd-job economy, further threatening the food delivery company’s ability to make a profit.

M&G, Aberdeen Standard Investments and Aviva Investors, who collectively oversee more than £ 1 billion in assets, told the Financial Times they would avoid next week’s listing, which is expected to be the largest IPO in the United Kingdom in a decade. Several smaller fund houses that invest heavily in UK stocks are also planning to avoid it.

The UK government is hopeful that the listing of Deliveroo, which targets a market capitalization of up to £ 8.8 billion, will signal a wave of IPOs in the City of London. Rishi Sunak, the British Chancellor, endorsed the company’s decision to list in London a day after recommending a series of changes to the UK’s listing rules that would allow companies with two share structures. classes to obtain premium status, thus giving them access to the FTSE 100.

If Deliveroo’s IPO goes as planned, Co-Founder and Managing Director Will Shu will own a stake worth around £ 500million and retain 57% of the voting rights. This dual-class control will allow him to veto any attempt to oust him from the board of directors by other investors, as well as block a takeover for up to three years after the IPO.

LGIM has said it is pushing the UK regulator, the Financial Conduct Authority, to ensure that Deliveroo is not included in premium indices, which would force the asset manager to invest in the company through its investment business. passive.

“It is important to protect minority and end investors from possible bad management behavior which could lead to destruction of value and avoidable losses for investors,” LGIM said.

Andrew Millington, head of UK equities at Aberdeen Standard Investments, also expressed concern about the two-class equity structure.

“We wouldn’t have the power to do anything [because of the rights the chief executive will hold for three years]. The CEO could run the business as he sees fit for years, ”he said.

Deliveroo has also faced growing questions about its handling of the 100,000 couriers who deliver its orders. A study by Britain’s Bureau of Investigative Journalism and the Independent Workers’ Union found that, on an hourly basis, many Deliveroo couriers in the UK were paid less than minimum wage.

Rupert Krefting, head of corporate finance and stewardship at M&G, said the company’s reliance on workers in the odd-job economy presented “risks to the sustainability of its business model for investors. long-term”.

Deliveroo recorded a loss of £ 224million last year despite an increase in order volumes of nearly two-thirds as the coronavirus pandemic put food delivery in the spotlight.

The company insisted that growing investor concern would not derail its IPO.

“Deliveroo has received very strong demand from institutions around the world,” the company said. “The roadshow started on Monday and the deal was covered by demand across the full price range by the end of the first morning. ”

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