Marks & Spencer taps backers for Ocado tie-up as Waitrose lurks

Troubled Marks & Spencer on Wednesday tapped investors for £600 million by issuing shares at a massive discount to fund its tie-up with Ocado.

M&S is paying for the Ocado deal by raising £601 million in a rights issue priced at just 185p a share, a 32% discount to the closing price on Tuesday. It comes on top of the previously announced 40% dividend cut carried out with today’s full-year financial results.

M&S’s dramatic deal with Ocado sees it replace Waitrose as the online grocer’s partner after 20 years. The move gives M&S a food delivery service for the first time.

Waitrose last week fought back by striking its own new joint venture on home delivery, pledging to boost online sales from £320 million to £1 billion.

M&S chief executive Steve Rowe, who is trying to turn M&S’s fortunes around, said there was bound to be “a bit of friction” with Waitrose, but remains confident shoppers won’t flee to its rival.

“We know the shoppers shop the Ocado brand,” Rowe said. He also argued that M&S is up to 4% cheaper than Waitrose.

Waitrose last week struck a deal with Today Development Partners, a business set up by Ocado co-founder Jonathan Faiman. Industry sources said M&S also held talks with TDP before choosing Ocado.

Paul Mumford at Cavendish Asset Management, which owns just under 1% of M&S shares, said: “M&S has admitted to being in the ‘difficult’ early stages of a ‘transformation programme’.

“For shareholders this is hardly encouraging. And these funds are being put to questionable use, with the joint venture with Ocado unlikely to be profitable for some time.” Profit at the retailer fell by 10% to £523.2 million for the year to March 30, slightly ahead of City forecasts of £519 million, but a third successive year of falling profits.

It was dragged down by one-off costs including a hefty £220 million bill for store closures. Stripping out those, pre-tax profits were just £84 million.