Deutsche Bank says Marks and Spencer could take over Ocado’s retail business within four years
Marks and Spencer could take over Ocado’s retail business within four years, says an investment bank.
The high street stalwart bought 50 per cent of Ocado’s UK online shopping arm for £750m in 2019, allowing customers to buy M&S products through the Ocado website.
Driving force: Marks & Spencer bought 50 per cent of Ocado’s UK online shopping arm for £750m in 2019
But Deutsche Bank said M&S should try to buy Ocado’s remaining 50 per cent. ‘We think it makes strategic sense,’ said Adam Cochrane, at Deutsche Bank Research. He added that such a move would provide ‘a big step up’ for M&S’s strategy of expanding its online operation, and a buyout could be struck in 2025 or earlier.
While the cost was not yet clear, Cochrane said the £750m M&S paid for its initial stake is ‘a starting point’. M&S declined to comment.
Deutsche said M&S was no longer ‘squandering’ cash on an ‘unsustainable dividend’ it scrapped last year to focus on improving the business. ‘In our view M&S needs to build firepower to enable it to make an offer for the remainder of the Ocado [retail business],’ the bank added.
In charge: M&S chief executive Steve Rowe
M&S shares rose 2 per cent, or 4.6p, to 240.8p on the back of the note, while Ocado jumped 6.8 per cent, or 121.5p, to 1897.5p. Clive Black, analyst at broker Shore Capital, said some Ocado-branded goods could be valuable additions to the M&S range.
The joint venture with Ocado has been a boon for M&S, raking in £28m for the group in the six months to October 2 as shoppers continued to buy online. It also forms part of a broader turnaround strategy spearheaded by chairman Archie Norman and chief executive Steve Rowe, who have used the pandemic to accelerate overhaul plans.
Ocado has been focusing on its technology arm, which develops robots to pick and sort groceries faster and cheaper than people.