Amazon-Backed Deliveroo to Price IPO at Lower End of Range

By Parmy Olson and Ben Dummett

LONDON -- Deliveroo, the Amazon-backed online food-delivery service, said it would price its initial public offering at the lower end of expectations citing volatile market conditions, signaling a more cautious stance even as demand has surged during the pandemic.

The U.K.-based company said Monday it intends to price its shares between GBP3.90 and GBP4.10, suggesting a valuation of between GBP7.56 billion and GBP7.95 billion, equivalent to about $10.5 billion and $11 billion. It had previously said they could sell for as much as GBP4.60. The stock is set to start trading in London on Wednesday under the ticker ROO.

The company said it had received significant demand for the offering but that "given volatile global market conditions for IPOs," selling shares at the lower end of its initial range would offer better long-term value for investors.

Deliveroo's IPO is the latest test of investors' appetite for a highly competitive industry but one that has benefited from more in-home ordering during the pandemic. U.S. peer DoorDash Inc. went public in December in New York.

Deliveroo already counts Amazon as its largest shareholder after the e-commerce giant acquired a 16% stake in 2019 in a deal that valued the startup at $3.5 billion.

However, the company has already hit some snags in its path to going public. A handful of large institutional investors in the U.K., including Aviva Investors and Standard Life Aberdeen, said last week that they wouldn't buy Deliveroo's shares amid market concerns that recent legal challenges against Uber Technologies Inc. could undermine Deliveroo's long-term profit growth.

After losing a key court challenge last month, Uber has since agreed to start paying its U.K. ride-hailing drivers benefits such as vacation pay and minimum wage, and some analysts say Deliveroo is at risk of being forced to bear similar costs for its drivers.

Other food-delivery firms have fallen out of favor with investors recently as vaccine take-up has increased and lockdowns in some regions start to ease, posing a return to physical restaurants. In the U.K., people will be allowed to dine outdoors at restaurants from April 12.

U.S. rival DoorDash Inc. priced its initial public offering at $102 a share in December, easily surpassing the San Francisco-based company's expected price range of $90 to $95, but its shares have fallen by more than a quarter since. Shares in Just Eat Takeaway.com NV, which bought U.S. rival Grubhub last year for $7.3 billion, have declined by a third since their record high last October.

Dan Thomas, an analyst at research firm Third Bridge, said there was a risk for delivery platforms that restaurants start to give priority to in-store dinners over online orders once they reopen.

Deliveroo's offering, among the biggest in Europe so far in 2021, could lend support to U.K. regulators' decision to adopt new listing rules later this year that are meant to help London better compete against New York and Hong Kong for tech IPOs. While gains for big technology companies have driven U.S. stock markets to record highs, London has slipped behind, with a stock market heavily weighted toward slower-growth banks and resources companies.

On Monday, British online car retailer Cazoo Holdings Ltd. said it was going public with a U.S. blank-check company in a deal that valued the combined entity at $8.1 billion, after earlier exploring a potential IPO in London.

"The IPO process in the U.K. is challenging for companies who are investing in high growth," Cazoo Chief Executive Alex Chesterman told reporters Monday. "They are better understood by U.S. investors."

Deliveroo plans to issue dual-class shares that would keep founder and Chief Executive Will Shu in control for three years. Under current rules, that would rule out inclusion in the London Stock Exchange's blue-chip FTSE indexes. However, Deliveroo shares will qualify following the expected approval later this year of the new listing rules.

Mr. Shu founded Deliveroo in the London neighborhood of Chelsea in 2013, and last year the company reported a 54% rise in annual net revenue to GBP1.2 billion, buoyed by greater demand amid the pandemic. The company also narrowed its annual loss to GBP226.4 million from GBP317.3 million in 2019.

Deliveroo has acknowledged the risks it faces as economies emerge from the pandemic, warning in its IPO documents that it wasn't yet clear whether the level of demand for online delivery would be sustained. It also noted that if struggling restaurants shut their doors for good, it would limit the selection on its platform.

One existing investor in Deliveroo said they felt neutral about the IPO pricing toward the lower end of its initial range. "It's a long term game," they said. "The question is where is Roo going to be in one year or three years."

Write to Parmy Olson at [e-mail] and Ben Dummett at [e-mail]

(END) Dow Jones Newswires

03-29-21 0942ET