Ocado takeover: Davy Research ‘sceptical that a deal will happen now’

Ocado shares soared yesterday after reports by the Times suggested Amazon could be lining up a bid for the embattled food retailer and technology company.

An approach from Amazon would make sense as Ocado’s technology would bolster its distribution efficiencies as it ramps up grocery deliveries. Amazon is reportedly considering an 800p per share offer with Goldman Sachs and JP Morgan working on the deal.

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Ocado’s tech solution business is expected to achieve 25% market penetration, and its warehouses provide attractive returns.

However, in the absence of any announcement from Ocado and Reuters reporting Amazon declined their approach for comment, the headlines yesterday may be no more than speculation.

Davy Research analyst James Musker has noted the conditions in which other UK tech companies have been acquired this year, and the difference with Ocado’s current situation.

Made.com, InTheStyle and Purplebricks were all acquired when they had run out of cash and were nearing administration.

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Ocado will need cash to scale its solutions business, but Musker highlights the crunch point will not be reached until 2025. Musker suggests Ocado could indeed raise further funds without a buyer stepping in.

Amazon or any other acquirer may wait for Ocado to become cash-strapped and secure a better valuation.

For this reason, Davy Research says they are “sceptical that a deal will happen now.”

After a 30% rally yesterday, Ocado shares were down around 8% at the time of writing on Friday.

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