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Delivery diver

31 March 2021 By Peter Thal Larsen, Karen Kwok

The City of London’s push to loosen stock market listing rules has just suffered a big setback. Shares in Deliveroo tumbled as much as 30% on Wednesday morning as investors steered clear of its much-hyped initial public offering, which valued the online meals-on-wheels startup at 7.6 billion pounds. British politicians viewed the loss-making group as an alluring appetiser for their campaign to persuade more entrepreneurs to list in London. The flop should prompt a rethink.

The eight-year-old company ticked many boxes for officials eager to remove obstacles that might dissuade startups from floating in London. Two government-sponsored reports have proposed letting companies with super-voting shares obtain a “premium” listing on the London Stock Exchange. Deliveroo founder Will Shu has introduced a structure which lets him keep control of the company even though he owns just 6%.

Politicians are also eager to make it easier for retail investors to participate in stock market offerings: Deliveroo sold shares worth 50 million pounds to 70,000 customers who signed up through its smartphone app. Even though the government has not yet formally changed its rules, it took Deliveroo’s decision to list in London as an early endorsement of the overhaul. Chancellor of the Exchequer Rishi Sunak earlier this month hailed the news as “fantastic”.

The Deliveroo debacle should slow the deregulatory drive. Institutional investors which shunned the offering, like Aviva and Aberdeen Standard Investments, now have a stronger case for keeping companies with super-voting shares out of benchmarks like the FTSE 100 Index. Politicians will presumably think again about the wisdom of encouraging retail investors to sink their savings into risky listings. Meanwhile, plans to make it easier to float special-purpose acquisition companies (SPACs) in London will also face greater scrutiny.

A likely more cautious approach to deregulation may force other startups like Wise, the payments company, to rethink their listing plans. It may also prompt more British companies to follow Cazoo, the online car dealer which this week unveiled a merger with a U.S.-listed SPAC. But it was always a mistake to hastily rewrite listing rules in the middle of a stock market boom. In the long run, Deliveroo may have done investors a favour.


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