Market Loop - Ocado taps market for £575m fundraise

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22nd June 2022

Bite-sized business news from the UK and beyond

Good morning Amid all this market chaos, we know you’re probably dying to know how the billionaires are doing. The answer: not great. In fact, 500 of the world’s wealthiest people have lost a combined $1.4tr this year, $206bn in the past week alone.

Today's stories

Ocado taps market for £575m fundraise
EY partners set for huge break-up payday

ONLINE
Ocado taps market for £575m fundraise

What happened?
Yesterday online grocer Ocado braved the volatile stock markets to raise £575m to fund the expansion of its tech arm across the world.

Ocado is more than just a food retailer
Ocado is best known for its online grocery business that it initially operated with the joint venture with Waitrose and more recently M&S. But the group also has a robotics division where it powers end-to-end online grocery fulfilment solutions to some of the world's largest retailers such as US supermarket chain Kroger and the French grocer Casino.

Ocado wants to be a world leader in this service and believes it has huge potential as more people turn to online food shopping. But it requires a huge amount of research and development and the company doesn’t make enough money to cover this investment hence why it had to ask investors for more cash.

Since launching in 2000, Ocado has only turned a pre-tax profit three times with the last occurrence in 2016. This has led some investors to be sceptical about when the company’s grand ambitions will lead to sustainable profits.

Leading credit rating agency Fitch agrees and downgraded Ocado’s rating from ‘stable’ to ‘negative’ citing the risks associated in executing the strategy.

Shares have lost almost half their value this year and currently trade at £8.50 – well below the pandemic peak of £28 reached in September 2020. Although there are some company specific reasons behind the decline – last month Ocado announced that its tie up with M&S would grow slower this year – the company has also been impacted by a wider market sell-off in tech stocks.

Other stories to keep you in the loop

Energy bills “to breach £3,000” in the New Year
Union rejects Rolls Royce £2,000 living-cost bonus
Cadbury owner to buy energy bar maker Clif Bar for $2.9bn
Craft beermaker Brewdog approached Heineken about partial sale
Kellogg's to split business into three
Spain's easyJet cabin crew plan strikes for July
Paramount+ launches bringing another streaming platform to the UK

ACCOUNTING
EY partners set for huge break-up payday

What happened?
Partners at accounting and consulting giant EY could net up to $8m each if the firm goes ahead with proposals to split up the business.

How did we get here?
For years the big four accounting firms — Deloitte, PwC, KPMG and EY — have come under intense pressure in the UK and the US. Regulators are particularly keen for them resolve the potential conflict of interest that occurs when selling consulting services to companies while also claiming to be independent auditors of companies’ finances.

One solution would be to separate these business areas completely and EY is making a head start. Last month EY partners began drafting plans to split the company in two:

The high growth advisory business which advises companies on taxes, mergers and acquisitions and strategy would become a new firm that goes public. 15% of the company would be sold for $10bn while it borrows $17bn, according to reports from the Wall Street Journal. Partners would own 70% of the company - worth around $8m each - and the remaining 15% would go to stock awards for employees.
The lower growth accounting business would become a standalone business. A huge chunk of the money raised and borrowed through the public listing of the advisory business would be used to pay off the partners in the accounting arm. They would each get two to four times their annual pay of $850,000 to $900,000.

A similar split happened 20 years ago when Accenture was spun out of auditor Arthur Andersen. Former “Big Five” auditor Arthur Andersen later collapsed following its involvement in the Enron scandal while Accenture continues to thrive.

Next steps: EY partners will vote on the proposals in the coming weeks and the break-up of the 312,000-person firm could take place as soon as 2023.

Stat of the day

Research by Kantar estimates that the average annual grocery bill is on course to rise by £380

Interesting links from around the web

The ultimate hack for warm weather: how to chill a bottle of white wine in less than 3 minutes
6 ways your imposter syndrome could be costing you money
The people who hate working from home

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Market Loop - Ocado taps market for £575m fundraise

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