M&S looked 'very closely' at a takeover of Ocado

By NEIL CRAVEN FOR THE MAIL ON SUNDAY
Updated: 16:48 EST, 11 December 2010

Marks & Spencer looked 'very closely' at buying Ocado before the online grocery retailer floated on the London Stock Exchange, but walked away after talks collapsed.

Discussions were held between Ocado and M&S management, led then by chief executive Stuart Rose and finance director Ian Dyson, more than a year before Ocado's owners decided to float the business.

Sources said the numbers 'didn't add up', but news that close negotiations took place will fuel speculation new M&S boss Mark Bolland could resurrect the plan. Ocado floated earlier this year, but shares have never risen above the float price of 170p.

Appetising: M&S lacks an online grocery service

Ocado would have provided M&S with a readymade online grocery business, a field where the group has lagged behind the big supermarket chains.

'They looked at it long and hard, but decided it was too much to take on strategically and financially,' said one source.

The board ditched the plan and has since launched a limited service whereby shoppers can collect food orders from stores. However, it has yet to reveal any food home delivery plans, unlike most of its supermarket rivals.

Bryan Roberts of research firm Kantar Retail said: 'Buying Ocado would be a way of providing Marks & Spencer with the infrastructure and expertise it needs to build market share quickly. I dare say the plan hasn't completely fallen off the agenda.'

Bolland is undertaking a wide-ranging review of the management structure and supply chain at M&S. Rose is due to leave as chairman on January 4 and key management changes could follow, sources have suggested.

One observer said the ' tremendous amount of change' means that Bolland is unlikely to prioritise food delivery plans or any acquisitions in the short term.

Were he to decide to buy Ocado, Bolland would also have to convince shareholders of the value of such a deal.

The main complication would be Ocado's contract to supply Waitrose goods on which its £891 million market value is based. Bolland would also have to factor in a termination fee of £40 million to Waitrose if he decided to press ahead.

M&S said: 'We are not going to comment on something that may or may not have happened a long time ago.'