Ocado and M&S bosses defend joint venture after share price reaction
The bosses of Marks & Spencer and Ocado have defended their joint venture in the face of investor concerns about the announcement.
M&S chief executive Steve Rowe said he was not surprised by the dramatic 10% decline in his company’s share price on Wednesday, but insisted that the strategy was the right move in the long term.
“This is not about the short term,” he said.
“This is about the transformation of M&S, about the transformation of online shopping in the UK.”
Investors and analysts have expressed concern about the deal, which will see M&S spend £750 million to buy half of Ocado’s UK retail business.
To fund the investment, the retailer is to conduct a rights issue with the goal of raising £600 million and slash its dividend by 40%.
Mr Rowe said the share price reaction reflected these short-term measures.
However, analysts at Jefferies said the retailer was paying a high price.
“Strategically this deal offers M&S some potential of achieving some medium to longer-term growth in food, and in our view is the only way it can hope to make money in the online food space,” they said.
“However, we think it is paying a high price which reflects it being very late to the party.”
Mr Rowe also sought to allay fears that the destruction of Ocado’s Andover facility in a fire this month would hold back growth, calling it a minor setback.
Ocado boss Tim Steiner revealed that he knows the exact cause of the fire, and has been able to share this information with M&S to assure them of the safety of the group’s technology.
“There is no issue here,” he said at a press conference.
The move is the latest action taken by M&S to overhaul its business, as it embarks on a major programme of store closures.
Over Christmas, its food sales fell 2.1% on a like-for-like basis, while clothing and home was down 2.4%.
The retailer has formed various partnerships as part of its turnaround plan, including agreements with Microsoft and Octopus Energy.
Mr Steiner said the joint venture with Ocado could help build customer loyalty to the M&S brand, driving shoppers to the bricks and mortar stores.
“I strongly believe through this transformational deal, Steve will have more shops in five years than he would if he hadn’t done this deal,” he said.