M&S is set to pay up to £900 million for a 50 percent stake in a combined retail business, London’s Evening Standard newspaper reports. Shares in Ocado jumped 10 percent off the back of this news to 92p, while M&S saw its price rise 3.2 percent to 303p. But both companies have since released short statements to play down a possible merger, saying there is no guarantee a deal will be completed.
M&S has been on the UK high street for more than a century, but in recent years has struggled to cope with the rise of fast fashion, discounters and online shopping.
The firm currently sells wine, flowers and clothes online, but does not offer a full delivery service for its upmarket foods.
This puts it at a distinct disadvantage to rivals such as John Lewis-owned Waitress and Britain’s biggest supermarket, Tesco.
Ocado, which was founded by bankers from Goldman Sachs in 2001, has in the last year struck major deals to sell its technology to international retailers such as US group Kroger Co and France’s Casino.
A possible deal with M&S would enable the company to keep a stake in its British retail business rather than selling it altogether to narrow its focus on technology deals.
The injection of cash from M&S would also enable the firm to invest further in the online distribution centres it is currently building throughout the country.
In a statement, analysts from research group Bernstein said: “In our view a 50/50 JV makes a lot of sense for Ocado today.
“It is too early to lose their retail business as it is an essential and unbeatable part of the sales pitch to global customers (i.e. they are not just selling you some hardware/software, they operate it very successfully in the most competitive grocery ecommerce market in the world).”
But not everyone close to the deal is entirely convinced it is a good move for both M&S and Ocado.
One source told the Evening Standard: “M&S is buying customers from Ocado, but those customers think they are Waitrose customers.
“How is John Lewis, Waitrose’s parent, going to respond to the loss of those customers?”
Ocado’s deal with Waitress ends in September 2020, and the Evening Standard said it has an 18-month break clause.
Waitrose declined to comment.
The newspaper reported the deal is understood to be structured like a joint venture to avoid legal complications with Ocado’s other supermarket partners – namely M&S’s main rival Waitress, and Morrisons.
But questions will also be asked about how M&S, deep in debts of £1.8 billion, will fund the huge deal.
The talks have intensified following a huge fire at Ocado’s distribution centre in Andover earlier this month, which handles 10 percent of customer orders.
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