Speculation over M&S Ocado split persists after payment dispute

Speculation over M&S Ocado split persists after payment dispute

Mar 29,2024
Experts suggest Ocado should try to woo US investors as the firm's dispute with M&S rolls on.
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British firm Ocado, which uses technology like AI and robotics to deliver online grocery needs, has seen a steady decline in its share price.

Despite reducing losses in 2023, shares have dropped by 66% in the last five years, and the company is not currently turning a profit.

In light of this lacklustre performance, experts - quoted by the Telegraph - have suggested that Ocado may want to shake off its ties with UK retailer Marks & Spencer.

The two firms joined forces as part of a £750 million agreement in 2019, as M&S sought to increase online food sales.

Some are now suggesting that the deal may have run its course, a rumour that Ocado Retail chief Hannah Gibson denied during a media call on Tuesday.

"We’re all just really focused together, across M&S, Ocado Group, Ocado Retail, on improving the customer position on growing this business," she said.

M&S and Ocado are currently embroiled in a row over a final payment related to their joint venture.

Under the agreement, M&S agreed to pay Ocado an initial £562 million, which was to be followed up with another payment of around £190 million if the venture met certain targets.

When Ocado then failed to fulfil these targets, M&S refused to transfer the final sum, a move that has prompted legal threats from Ocado.

M&S should take into account the Covid-19 pandemic, which "significantly and negatively impacted the average number of active customers", Ocado said.

Although online shopping boomed during lockdown periods, Ocado has claimed it struggled with the surge in demand, which resulted in excess capacity.

Meanwhile, with this dispute rumbling on, M&S wants more of its products to be added to Ocado’s website in order to boost performance.

M&S products account for just under 30% of the Ocado Retail range, the highest proportion to date.

Given these tensions, some analysts believe that Ocado would be smart to offload its retail division to M&S.

It would then have the opportunity to focus on its technology arm, which sells robot warehouse equipment.

Experts also haven’t ruled out the possibility of a US market listing, which would allow investors across the pond to support Ocado’s operations.

In recent years, a number of European companies have been favouring US exchanges, as opposed to listing on stock markets closer to home.

"No matter how you look at the data, the United States is the deepest pool of liquidity and capital in the world, which has the broadest investor base," NYSE Vice Chair John Tuttle told HyipScan.Net at the World Economic Forum summit this year.

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"It has a lot of analysts and investors that are focused on growth, not just dividends and value," he added. 

If Ocado meets the US market with a strong strategy, it could tap into this pool of Investment.

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