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Ocado plans to raise more than £1bn from investors as the grocery delivery company looks to cash in on the boom in online deliveries sparked by the coronavirus pandemic.
The company said it aims to raise £657m in an equity share placing with institutional and retail investors, as well as borrowing £350m via a convertible bond issue.
Ocado has benefited significantly from increased orders as people have been required to stay inside during the coronavirus lockdown, and the company expects the increase in online grocery shopping to persist even after restrictions on movement ease.
“Online grocery is experiencing an inflection point,” said Tim Steiner, Ocado’s founder and chief executive. “The current crisis is proving a catalyst for permanent and significant acceleration in channel shift globally which we believe will redraw the landscape for the grocery industry worldwide.
“The significant acceleration in online grocery provides us with greater opportunities than ever before.”
Ocado, which employs more than 15,000 people, mainly in the UK, runs the Ocado.com online retail operation in a joint venture with Marks & Spencer, as well as deals to provide delivery services for supermarkets in eight countries, including Morrisons in the UK and Kroger in the US.
A statement to the stock market cited data from Nielsen that showed that online shopping has almost doubled in recent months to 13% of the UK grocery market, from 7% before the crisis.
“Industry data evidences that Covid-19 has significantly accelerated this ongoing change in shopping habits, as ‘lockdown’ measures have led consumers to shop online,” Ocado said.
The fundraising came as newly merged fast food delivery group Just Eat Takeaway said it was in talks with New York-based GrubHub over a potential all-share merger as the crisis intensifies efforts by online delivery companies to gain market share.
Shares in Just Eat Takeaway fell by 13% on Wednesday after the talks were disclosed. GrubHub had been in talks with rival food delivery company Uber Eats, but faced competition concerns.
For Ocado, the £1bn it planned to raise will be used to increase capacity with existing partners as well as enabling it to quickly add new clients by buying new warehousing space and installing new robots to gather orders.
Ocado said it expected its partner supermarkets to bring forward investments in expanding their online shopping services. More money was also needed to spend on technology and potentially on offering new products, it said.
Clive Black, head of research at investment bank Shore Capital, said the company was taking advantage of its high share price to meet its heavy cash needs. Ocado shares have risen in value by 38% since the start of 2020, giving it a market value of £14.6bn when markets closed on Wednesday before the fundraising announcement.
The fundraising represented “tremendous opportunism” but it was difficult to judge how the company was faring given the lack of visibility of sales of its partner grocers, Black said. “They’re burning so much cash they do need it to avoid looking over their shoulder all the time.”
Ocado faced a protest vote from shareholders last month after it gave a large pay rise to directors because of the sales rise, even though extra costs meant it was not more profitable. The company is not forecast to make a profit by analysts until beyond 2024, according to average estimates compiled by S&P Global Market Intelligence.
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