Ocado floats - just - at hefty discount

Shares in Ocado are now in unofficial trading, but only after an eleventh-hour price cut to 180p.

Last Updated: 06 Nov 2012

That’s 20% down on the bottom end of the original 200p-275p valuation range, and values the firm at some £937m. Substantially less than the £1.3bn that Ocado’s bosses have consistently maintained that the firm is worth.

What’s more, the stock plummeted even further in unofficial trading, immediately dropping another 10% to 156p. Which rather suggests that the deal only got away because of the support of a few key investors, and that the wider market still thinks the shares are overpriced. Oh dear.

The last minute discount is certainly an embarrassment to the Ocado management, who were adamant that everything was going according to plan – right up to the moment when it wasn’t. Chief exec Tim Steiner has even shelved plans to sell his shares at 180p, saying that the float was not about exiting the business but about financing growth.

The price cut seems pretty certain to have been required in order to get a couple of big name backers to put their hands in their pockets – notably Tetrapak billionaire Jorn Rausing and hedge fund boss Nick Roditi, who between them took about £15m worth of stock. Ocado shares are now expected to officially join the FTSE 250 index in September.

Some 70% of the firm’s new shareholders are also said to hail from Asia and the Far East. Investors there either have more stomach for risk or are less influenced by the torrent of negative analyst and press coverage the deal has generated, depending on your point of view.

The retail part of the prospectus – where employees and customers are invited to apply for shares – has been a particular flop, with most punters opting to do what they do when they shop at Ocado and stay at home. Only some £10m of an expected £50m has been raised so far this way, although the deadline for applications has been extended to Friday.

There’s no sign of a change in sentiment in the City either, with analysts still queuing up to explain why they don’t like it even at a discount. We suspect that along with all the known issues about profitability and security of supply, a fair amount of this bad feeling has been down to the perceived arrogance of the Ocado bosses’ attitude.

But, notwithstanding all the bad news, the fact remains that the firm has floated, and under extremely unfavourable conditions at that. And it also raised the vital £200m in free cash required to build a new distribution centre, albeit at the expense of diluting the holdings of its existing backers.

So, by that reckoning, it's a pretty good day’s work. The bosses’ Goldman Sachs pedigree seems to have come to the fore, and they and their hordes of official bankers and advisers managed to pull in the favours and get the deal away despite heavy opposition.

Where the shares will be in a month or even a year or two’s time, we can’t say. But for now we reckon that Ocado has levelled the score with its City sceptics.

In today's bulletin:

Ocado floats - just - at hefty discount
BP begins big sell-off with $7bn deal
Apple shrugs off 'death-grip' woes as it smashes forecasts
Goldman reports a 'sharp' drop in profits
Sisters are doing it for themselves (and their partners)

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