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Aberdeen Standard has become the latest institutional investor to publicly shun Deliveroo’s initial public offering (IPO) next month, joining the likes of Aviva, due to concerns over workers’ rights.
The stock market float is on track to be the biggest London listing in a decade, however, Aberdeen Standard said it was also concerned about the sustainability of the business model.
Recent analysis from the Bureau of Investigative Journalism has revealed that more than one in three Deliveroo riders (41%) earned less than £8.72 per hour, the minimum wage for anyone aged 25 or over.
Meanwhile, one in 10 took home less than £6.45, the lowest legal minimum wage for an adult.
As riders are self-employed, they are not entitled to earn a minimum wage from the company, holiday and sick pay.
The food delivery company is targeting a market cap of between £7.6bn ($10.5bn) and £8.8bn, setting its price range between £3.90 and £4.60 per share.
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“We will not be taking part in the Deliveroo IPO as we are concerned about the sustainability of the business model, including but not limited to its employment practices, and also the broader governance of the business," said Andrew Millington, head of UK equities at Aberdeen Standard.
He said the conditions were a “red flag”, adding: “We wouldn’t be comfortable that the way in which its workforce is employed is sustainable.”
David Cumming, chief investment officer at Aviva, said investors were taking social responsibilities “a lot more seriously.”
Aberdeen Standard and Aviva manage more than £800bn of assets combined.
Although transaction values on Deliveroo’s platform grew +121% year-on-year at the group level in January and February 2021, the company is still yet to make a profit.
The takeaway go-between issued a statement at the beginning of March that showed it had narrowed its losses in 2020 to £223.7m. That's compared with a loss of £317.3m in 2019, following a bumper year, partially due to stay-at-home orders during the coronavirus pandemic.
“It probably won’t be profitable for a while yet. Competition is pretty intense, particularly in the key London market,” said Neil Wilson of Markets.com.
He adds: “Investors should always be careful about richly priced tech platform IPOs, particularly if they look like pricing at the top of the range because there is a lot of primary demand. That doesn’t leave a lot of headroom.”
Other details of what Deliveroo intends to roll out have already been announced over the last few weeks. It plans to make £50m of shares available to its customers in a “community offer,” meaning customers can buy up to £1,000 shares each.
The company also said it would give up to £10,000 to its busiest riders with a £16m "thank you" fund.
At the time, Will Shu, founder and CEO of Deliveroo, said: "We are proud to be listing in London, the city where Deliveroo started. Becoming a public company will enable us to continue to invest in innovation, developing new tech tools to support restaurants and grocers, providing riders with more work and extending choice for consumers, bringing them the food they love from more restaurants than ever before."
It comes Uber (UBER) lost a pivotal Supreme Court case on drivers' rights in the UK last month.
The Supreme Court ruled that UK Uber drivers qualify as workers rather than contractors. The verdict upheld the judgment of a lower employment tribunal in 2016.
"The Supreme Court unanimously dismisses Uber’s appeal," Lord Leggatt said during an online hearing in February.
Lord Leggatt said Uber's control over drivers meant they qualified for full employment rights. He cited the company's control over fees, a lack of say in contract term, effective punishments for failing to take jobs, and other forms of control.
"The transportation service performed by drivers, and offered to passengers through the Uber app, is very tightly defined and controlled by Uber," Lord Leggatt said.
The ruling means Uber drivers are now entitled to minimum wage, holiday and sick pay, and rest breaks. Mark Rix, GMB National Officer, called it "a historic win." The GMB union supported the Uber drivers who bought the claim.
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