Listing badly or desperately needed flotation aid?

Proposed changes to London’s listing rules announced this week have played a vital part in persuading to list in London.

intends to use a “time-limited dual-class share structure” to ensure its founder, Will Shu, retains control of the company when it goes public.

Deliveroo said the dual-class share structure would give Shu the “stability to take decisions to enable the company to execute on its long-term strategic vision in order to create long-term shareholder value”.

The dual-class structure would be in place for three years, which is actually a shorter duration than would be allowed should the City adopt recommendations on listings rules published this week by Lord Hill, the former European Union commissioner.

Proposed changes to London’s listing rules

Lord Hill was asked to lead a review of London’s listing rules and he made the case for changes to be made, saying that although the Official List has historically been globally recognised as a mark of quality for companies, between 2015 and 2020 it accounted for just one in 20 of flotations globally.

The number of listed companies in the UK has fallen by about 40% from its peak in 2008 while since Brexit was finalised, there has been increased concern about Amsterdam and other European financial centres siphoning off business from London.

Lord Hill also highlighted that the constituents of the FTSE 100 are overwhelmingly representative of the “old economy”, with technology giants decidedly thin on the ground.

As such, Deliveroo, if it achieves its presumed market capitalisation of £7bn or £8bn, would be a shoo-in for inclusion in the FTSE 100 but only if the rules are changed. (), with a market capitalisation of £6.9bn, has been excluded from the FTSE 100 because of its dual-class share structure and the same exclusion would apply to Deliveroo.

There is reportedly a host of other technology companies looking to go public and London would dearly love them to choose to list here but the City’s distaste for dual-class shares, where the founders control a majority of the voting rights but not necessarily a majority of the shares, has proved a deterrent to technology companies, whose founders tend to be keen on keeping their hands on the tiller.

Hill recommended that companies with dual-class share structures should be allowed to list on the premium listing segment of London but stipulated that the “A” shares and “B” shares should be merged after a maximum of five years.

Lord Hill also proposed that the super-power of the “B” shares should only be used in votes relating to the composition of the board and to block changes in ownership of the company.

Another recommendation of the report was that the “free float” requirement, which is essentially the percentage of shares that are not held by committed long-term shareholders, be reduced to 15%.

Perhaps most controversially, Lord Hill’s report recommended loosening restrictions on special purpose acquisition companies (SPACs), often referred to as “blank cheque” shell companies.

Race to the bottom

As one might expect, some are in favour of the proposed changes while others warn of a dangerous dilution of London’s reputation as a highly-regulated financial centre.

“Allowing SPACs doesn’t seem like a battle worth having even if past experience of shell companies, their closest equivalent in the UK, is that they tend to attract chancers and abstract wealth from shareholders. Provided there is proper disclosure, caveat emptor ought to apply,” suggested Ivan Sedgwick, the investments director at LGB & Co.

“Calls upon the FCA [Financial Conduct Authority] to loosen listing regulations, especially for SPACs, should be treated with caution,” declared Russ…