The IPO of Deliveroo follows hot on the heels of the changes in listing requirements proposed in the Budget by Rishi Sunak just a few weeks ago, which would allow founders and pre-IPO investors to retain super voting rights with their shareholdings and, as some critics have since suggested, erode London’s reputation as a beacon of good governance.
These dual share class structures have generated a lot of controversy over the pond in recent years. For example, Facebook’s Class B shareholders receive 10 votes for every share held, compared to just one vote for each share held of Class A stock.
As we mentioned in a blog a few weeks ago, while companies can list in London with these dual share class structures; they are precluded from having a premium listing i.e. being included in the FTSE 100 and FTSE 250. These new reforms would sweep away those restrictions meaning Deliveroo would likely automatically be included in the FTSE 100, although the backlash has already prompted it to suggest it will price its IPO at the lower end of its target range at about £7.6bn from the £8.8bn mooted initially.
Not everyone is happy at the prospect of being forced to invest in the firm though. The FT reports that some managers are already pushing the FCA to ensure that Deliveroo is not included in premium indices as they don’t want to be forced to include it in passive products that track the FTSE 100.
What was meant to herald a new dawn for the UK stock market – ushering in a wave of tech darlings following the listings of Moonpig and Trustpilot already this year – seems set instead to present a series of headaches for all involved.
All of this may also present a warning shot over the barracks to other tech firms looking to list in London with dual share class structures. If Deliveroo was to be excluded from premium indices, would others choose to follow after all? Blue Prism already recently announced it was considering ditching its UK listing and moving to the US, as it didn’t think UK investors understood tech firms.
Yet, if shares in Deliveroo do end up performing well and becoming a success story of the UK market, yet many investors are excluded from sharing in that potential success by their asset manager, what does that mean for end-investors who are choosing passive products for a reason.
I’ve heard a number of managers talking on this very issue over the last few weeks – and there is an argument that permitting super voting shares for founders – who have been responsible for building the company and have a long term ownership mindset – could be acceptable. Key to this though, is the use of sunset clauses to ensure that the super charged shares revert to ordinary shares when sold or at a specific date.
Of course, Deliveroo is facing scrutiny beyond just its proposed share class structure. Couriers of the company, according to a study by the Independent Workers’ Union of Great Britain, are said to earn less than the minimum wage on an hourly basis.
From a communications perspective, there is clearly a case to be made on issues of governance if a company could potentially face regulatory scrutiny over its workforce – but if companies listing with dual share class structures receive such a backlash already, this may spell the end of hopes of an emerging tech boom in the UK before it’s even begun.