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Deliveroo’s shares plunged 30 per cent when trading began on Wednesday, wiping £2.3bn off the company’s valuation within minutes.
The food delivery app saw its share price tumble from 390p to 280p after the stock began conditional trading on the London Stock Exchange for the first time.
Deliveroo had already cut its top-end valuation by £1.2bn before the shares went on sale in the most anticipated initial public offering in London for a decade.
It came after a string of large fund managers shunned the company, citing concerns over workers’ rights. Investors had also raised concerns about a dual-class share structure that would give them less of a say in the company while allowing founder Will Shu to keep control.
Analysts questioned whether Deliveroo would be able to serve up consistent profits if it had to grant more rights to riders.
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“Deliveroo’s price isn’t quite as tasty as it was hoping for, coming in at the lowest end of an already narrowed range,” Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.
“The biggest concern is regulation around worker rights. The flexible employee model of Deliveroo’s riders is a huge pillar of the group’s plans for success.
“If forced to offer more traditional employee benefits, like company pension contributions, Deliveroo’s already thin margins would struggle to climb, and the road to profitability would look very tough indeed.”
Hundreds of riders are planning strike action next week when the shares go on unconditional sale to the public, the Independent Workers’ Union of Great Britain (IWGB) has said.
The disastrous debut risks embarrassing the government which had held Deliveroo’s decision to list in the UK up as an example of London’s enduring appeal as a financial hub after Brexit.
Rishi Sunak had hailed Deliveroo’s decision to list in London, praising the startup as a “true British success story”.
The chancellor said earlier this month: “The UK is one of the best places in the world to start, grow and list a business – and we’re determined to build on this reputation now we’ve left the EU.
“That’s why we are looking at reforms to encourage even more high growth, dynamic businesses to list in the UK.”
Mr Sunak has supported the Hill review into City regulation that proposes allowing FTSE 100 listed companies to use the kind of dual-class share structure Deliveroo has chosen.
The sharp drop in Deliveroo’s share price and the fact that major fund managers have shunned the IPO will be seen as a clear rejection of the proposals.
Deliveroo blamed “market volatility” when it priced the shares at the bottom of its offer range on Tuesday. The company pointed to falling share prices for rivals in the food delivery market.
Before trading began, Will Shu said: “I am very proud that Deliveroo is going public in London – our home.
“As we reach this milestone I want to thank everyone who has helped to build Deliveroo into the company it is today – in particular our restaurants and grocers, riders and customers.
“In this next phase of our journey as a public company we will continue to invest in the innovations that help restaurants and grocers to grow their businesses, to bring customers more choice than ever before, and to provide riders with more work. Our aim is to build the definitive online food company and we’re very excited about the future ahead.”
The spotlight has shone on Deliveroo’s employment practices after research by The Bureau of Investigative Journalism (TBIJ) found that a third of riders earned less than the adult minimum wage of £8.72 per hour. The lowest paid rider received just £2 an hour, according to TBIJ’s review of pay documentation.
Deliveroo disputed the claims which it said were “unverified”. Riders earn £13 per hour, on average, Deliveroo said.
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