SUPR view:
Ocado spin-off grocery business into new M&S joint venture
The JV sales of £1.5bn and Ebitda of £34.2 million
M&S will pay Ocado £750m for 50% share in the venture
- values the venture at £1.5bn
- equal to 44 times trailing Ebitda (Tesco 20x, Sainsburys 20x, Morrisons 23x)
The new venture will give M&S access to Ocado’s 721,000 customers
Provide M&S with necessary capacity to enter £11bn online grocery market
- M&S mainly operate smaller high street supermarkets (587 sites)
- not suited to store pick fulfilment model
M&S fund acquisition via a new rights issue, Ocado will use funds to build American CFCs
Ocado market share of UK grocery ~1% valued at £1.6bn implies £43.2bn valuation of Tesco's UK business vs Tesco enterprise value of £35bn M&S share price down 9% - Ocado up 4%
Looks expensive route to market for M&S
