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Online supermarket Ocado has surprised shareholders with the news that it’s looking to raise £500m via a convertible bond offering. The supermarket chain, which is best known for online deliveries in the UK, said it would use the proceeds of the bond to fund the build of new robotic warehouses. The news sent shares plummeting by eight per cent earlier in the week, now standing at 1,235p at the time of writing, although the stock is up 48% so far this year. This announcement comes hot on the heels of the news that the supermarket chain has struck a deal with Japanese retailer, Aeon, to develop its online grocery business. This is the latest in a line of deals with international food groups forged by Ocado Solutions, the technology arm of the grocery business. It has already teamed up with Sweden’s ICA group, France’s Groupe Casino and Kroger in the US to develop online grocery software and automated warehouses.
Under the terms of the bond sale, bondholders would receive between 0.75 and 1.25 per cent interest per year, with bonds set to mature in 2025. So, should investors be concerned about the share price fall and what does it mean for Ocado’s long-term prospects? The supermarket group made huge gains last week when it announced the Aeon deal, so many analysts see this dip as a slight pull-back from that. Many are viewing the dip as a predictable link to the prospective dilution of stock from the bond issuance. The Aeon deal is perceived as hugely positive – it is Japan’s biggest supermarket group with around 100 million customers – and the deal has the potential to boost Ocado’s reputation around the world. Ocado is set to publish its fourth quarter results next week and although retail revenue is slightly below expectations, it is making strides in offsetting any grocery division losses by forging global technology partnerships – could they have the potential for long-term yields?
Rival supermarket, Morrison’s saw its share price dip by 2.2 per cent after announcing that finance chief and commercial officer Trevor Strain is to hand over the reins to group finance director Michael Gleeson. With share prices at 197.00p at the time of writing and a market cap of £4.7 bn, some analysts mused that the supermarket giant was not outside of the realms of possibility of falling out of the FTSE 100 in the first quarter reshuffle of 2020 if share price moves don’t go its way. Not everyone is worried though – some analysts see long-term growth potential for Morrisons citing the way it has reduced its debt over the past few quarters and invested in its wholesale operations. Like all supermarkets, Morrisons is slightly at the mercy of political uncertainty and the outcome of the General Election, but a strong festive run-in could put shareholders’ minds at rest.
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