Rights issue and a reduction of the dividend are two ways M&S will pay for the deal.
Marks & Spencer (MKS) and Ocado (OCDO) announce joint venture
- Funding for new venture will come from M&S via a £600m rights issue
- In early trading M&S shares dropped 8% while Ocado rose 1%
- Decision by M&S should be seen as positive, although investors may see this as coming later than expected
Following weeks of rumours, Marks & Spencer and Ocado have today finally announced a joint venture to deliver M&S groceries and general merchandise via online orders. M&S is going to fund the deal with a £600m rights issue which will be need to help with the £750m cost of buying a 50% stake in the new venture. The venerable high street retailer will also reduce its dividend by 40% as part of the deal.
For Ocado the advantage is it will now have more funds to help with developing new automated warehouses for its customers, such as US group Kroger.
Mixed Market Reaction
The reaction in the market was quite revealing with M&S’ shares down 8% while Ocado is up 1%. That suggests that Ocado is getting the better end of the deal. Part of that may be down to the price M&S is paying and the fact the dividend, historically a major part of the stock’s appeal, has been cut significantly. On the face of it the move by M&S is a good one, although it is long overdue and the company has some catching up to do.
Our View on Marks & Spencer - Hold
Our recommendation on Marks & Spencer is under review but we retain our recommendation of ‘Hold’ on Ocado.
If you're looking to invest in the General Retailer Sector and you're not currently a customer of The Share Centre, sign up today. You can also view the full range of General Retail companies and their share prices.
All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.