Analysts have rubbished speculation that UK grocer Morrisons might be considering bidding for online retailer Ocado.
Shares in Morrisons, which has yet to move online, rose yesterday (25 November) on talk that it could be bid for Ocado, the pure-play online retailer founded in 2002 and which listed this summer.
However, in an analyst note released today, RBS analyst Justin Scarborough described the rumours as being “nonsense”. Morrisons, he said, is one of the “most financially conservative of companies with high degrees of capital discipline”.
Scarborough added that a bid for Ocado at a 40% premium would not generate a post-tax ROIC over 7% until FY2017 and that strategically Ocado would not enhance the Morrisons brand and that a proposed deal would make “no strategic sense”.
Meanwhile, Verdict analyst Matt Piner suggested that, while on the surface there might seem to some plausible synergies between the two retailers, he argued there is “too much in the way” to create a deal that would benefit both parties.
Ocado sells products from upmarket grocer Waitrose as part of a deal that lasts until 2020. Piner claimed the agreement between the two companies means that, if a majority share of Ocado was bought by one of Waitrose’s rivals, the grocer has the right to pull its products and the online retailer would have to pay a GBP40m (US$47.2m) settlement.
Piner described the settlement amount as “small beans” but was more concerned about the “overall disruption” such a move would cause, given, he said, that many customers shop at Ocado for Waitrose products, and they would be “unlikely to stick around” if those products were not availiable.
An Ocado spokesperson declined to comment on the rumours, while a Morrisons’ spokesperson described them a “pure speculation” and having “no substance”.
