Deliveroo IPO pursued by complaints about employees’ rights

A Deliveroo courier runs along Regent Street delivering takeaway food in central London during the Covid-19 Tier 4 restrictions.

Pietro Recchia | SOPA pictures | LightRocket via Getty Images

LONDON – Deliveroo’s listing is at risk of being tarnished a bit by investors concerned about how the company handles its couriers.

The Amazon-backed company hopes to raise £ 1 billion ($ 1.37 billion) on the London Stock Exchange on April 7, with a potential valuation of up to £ 8.8 billion. It will be the UK’s largest initial public offering since Glencore in 2011.

However, the UK’s largest fund manager, Legal and General Investment Management, which manages over £ 1.3 trillion in assets, said it is unlikely to be involved. Concerns were raised about the gig economy Deliveroo operates in and the company’s share ownership structure, which CEO Will Shu gives over 50% of the voting rights.

“It is unlikely that we will participate in the IPO through our active or index funds,” a spokesman for Legal and General told CNBC on Friday.

“We are seeing increasing signs of countries and governments reviewing the status of the gig economy,” they added. “We take our role as the responsible steward of our clients’ capital very seriously and work with a number of companies in the sector on ESG issues such as employee rights and proposed share class structures.”

Two of the UK’s largest wealth managers also said this week that they will not buy shares in Deliveroo.

Aberdeen Standard and Aviva, which manage over £ 800 billion, are concerned about how Deliveroo treats its drivers.

“As long-term investors, we want to invest in companies that are not only profitable but also sustainable – employee rights and employee engagement are an important part of that,” a spokesman for Aberdeen Standard told CNBC.

“Our customers’ expectations of how we incorporate environmental, social and corporate governance (ESG) into our decision-making have changed significantly over the past decade. We therefore believe that our customers support our approach. We will not adhere to Participate in Deliveroo. ” IPO as we are concerned about the sustainability of the business model, including but not limited to its employment practices, as well as greater governance of the business. ”

Andrew Millington, head of UK equities at Aberdeen Standard, told the BBC’s “Today” program on Thursday that Deliveroo’s working conditions were a “red flag”, adding that Aberdeen Standard’s decision was similar to the recent move was to sell shares in the clothing retailer Boohoo, which was accused of exploiting workers.

Aviva declined to comment, but referred CNBC to comments made by David Cumming, Aviva’s chief investment officer for stocks, to the BBC on Thursday.

“Many employers could make massive changes to workers’ lives by guaranteeing working hours or a living wage, and corporate behavior is becoming increasingly important,” said Cumming, before pointing out that Deliveroo drivers are not given basic rights. “We’re not going to invest in Deliveroo for a number of reasons, but that’s one of them.”

M&G Investments also plans to skip the IPO. Rupert Krefting, Head of Corporate Finance and Stewardship at M&G, said: “We still see risks to the sustainability of its business model for long-term investors. This is mainly due to the company’s reliance on gig economy workers in the UK as informal employment Contracts may not offer the value, job security and benefits of full employment. “

Deliveroo’s tight profit margins could be at risk if the driver benefits have to be changed, added Krefting.

A Deliveroo spokesperson told CNBC that drivers have the “freedom” to choose when to work and that they can work for multiple apps at the same time, including competing platforms like Uber Eats. They added that there is great interest among investors in the upcoming IPO.

Deliveroo drivers are technically independent, so they are not entitled to vacation days and sick pay. They are also not entitled to the national minimum wage.

While Aberdeen Standard and Aviva are reluctant to invest, many big names have already bought shares in Deliveroo. Amazon initiated a $ 575 million investment round in the company in 2019 and today has a 15.8% stake in Deliveroo. Venture capital firms such as Index Ventures, DST Global and Accel Partners also hold shares in the company.

A Deliveroo spokesman told CNBC the company is “proud to have 50,000 drivers working across the UK”

“There has been strong investor interest in our planned IPO and we are already backed by some of the most respected global tech investors,” they said.

“Deliveroo drivers are self-employed because they are free to choose when and where to work. We believe in our business model, which has been upheld three times by UK courts, including twice by the High Court.”

Gig economy shattered

Cumming noted that there is some risk associated with Deliveroo’s IPO if legislation changes and Deliveroo has to reclassify its drivers as employees.

Uber was forced to do so last week following a UK Supreme Court ruling. Bank of America estimates that Uber’s setback in UK employment rights could cost the company more than $ 500 million overall.

Deliveroo has allocated more than £ 112 million to cover potential legal costs related to the employment status of its drivers and has warned potential investors of the risk of litigation around the world.

The Independent Workers’ Union of Great Britain said Thursday that many Deliveroo drivers earn less than the £ 8.72 minimum wage, with some taking home as little as £ 2 an hour.

“These unverifiable, misleading claims by a fringe organization that claims to have spoken to 0.6% of Deliveroo drivers should not be taken seriously,” said a Deliveroo spokesman. “Drivers in the UK are paid for every delivery they want to complete and an average of £ 13 an hour in our busiest times. We communicate with thousands of drivers every week and satisfaction is currently at an all-time high.”

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