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I don't think the rising cost would put M&S off - Ocado Retail will be worth more and making more profit - they can even use profit from Ocado Retail to part fund the purchase - it just has to come at the right time for them.
As for the fund raise - one likely scenario is that Kroger, and maybe other partners, will be interested in increasing their equity stake in Ocado Group - that would certainly make things easier.
As the partners reliance on Ocado Solutions grows they will want to make sure that Ocado Group remains independent - holding equity is the best way of doing that and they can also share future profits when dividends are paid.
Marks could delay buying but as they delay the price of buying out the JV could rise considerably.
One thing this has made clear is that the next Ocado group fundraising which is slated for late 2022 most probably will happen as it is unlikely that Marks and Spencer will buy out Ocado retail before then. A buyout would provide enough funds for Ocado group so a fundraise would not be needed.
I don't think that M&S are in a position to buy the other 50% at the moment.
However, by the Spring of 2024, I think that M&S will be in a much stronger financial position with a FTSE100 listing and paying dividends - that will be the prime time for them to make a fair value offer to buy.
"Yes, this issue is effectively closed until May 2024 unless M&S decide to buy the other 50% before then"
Marks may decide to buy but Ocado group may no want to sell and they control the price they put on their half of the JV. Ocados price may be too high.
Yes, this issue is effectively closed until May 2024 unless M&S decide to buy the other 50% before then - my guess is that they will, but not until just before the deadline.
In the meantime the value of Ocado Retail will continue to increase - good news for all.
Thanks for this info chilting. Good spot re the Irish CFC info. Extremely useful. With this we clear up a few things...
Neil's points are part true, part false:
"No bidding auction on 50% Ocado JV with Mks, I think you will find first call is legally written in the agreement.
Agreed, there will be no bidding auction. If any third party buys Ocado groups half of the JV it will be because Marks and Spencers had agreed this should be the case.
Marks and Spencers would be offered the chance to buy if Ocado group wanted to sell their half of the JV. If Marks and Ocado couldn't agree on the price then Ocado group could sell of their half of the Ocado retail JV in an IPO.
"You will also find there is a pre determined methodology for calculating fair value for any sale for either party, and a notice period."
Not true - Ocado is free to set the price it requires if it wants to sell its half of the JV. Yes there are notice periods. Either party cannot sell its half of the JV before May 2024.
It seems Neil is right - this is from the prospectus in May 2019 - link below.
Another snippet - Ocado Retail have until May 2022 to commit to a CFC in the Irish Republic - if they don't Ocado Solutions can find another partner.
from page 34 of the prospectus -
"Subject to certain limited and customary exceptions, neither OHL nor M&S Holdings will be
permitted to transfer its shares in Ocado Retail prior to the fifth anniversary of the date of the
Shareholders’ Agreement. Following the expiry of such period, either of OHL or M&S Holdings
may decide to exit from Ocado Retail by following the procedures set out in the Shareholders’
Agreement, which involve, among other things: (i) selling all of its shares in Ocado Retail to the
other; or (ii) if the other shareholder is unable to agree upon a valuation of its shares,
implementing an initial public offering or a demerger of its shares (but not in respect of the
shares of the other shareholder, unless that shareholder so wishes). There are no
circumstances in which either OHL or M&S Holdings may decide to exit from Ocado Retail by
selling to a third party without the agreement of the other; and
• from the tenth anniversary of Completion, either OHL or M&S Holdings will be permitted to
trigger an initial public offering of Ocado Retail (or a new holding company of Ocado Retail)
which both of them would be required to support and facilitate, and in which both of them
would be required to dispose of an equal proportion of their shares in Ocado Retail so as to
ensure a public markets “free float” of between 30 and 50 per cent. on such initial public
offering becoming effective."
http://tools.morningstar.co.uk/tsweu6nqxu/globaldocuments/document/documentHandler.ashx?DocumentId=219719557
Makes total sense as you say chilting for Ocado group to be in close contact with Marks and Spencers if they are thinking about selling their half of the JV
Any suggestion there are existing clauses/arrangements between Ocado group and Marks and Spencer regarding the sale of the remaining half of the JV that Ocado group own is pure speculation...
It certainly makes complete sense for Ocado to fully engage with M&S and try and get the best deal for both parties - maybe that could even be a staged payment - selling 50% was maybe the start of that process?
It is also important that M&S and Ocado don't fall out in any way at any time - Ocado must always remember that M&S is an important customer.
If agreement was reached, there would be no way in for other bidders - assuming the shareholders of both companies agreed the deal - other than making an offer for M&S.
Any source for this speculation? Or just hot air?
You will also find there is a pre determined methodology for calculating fair value for any sale for either party, and a notice period.
Correction -
"It is possible. I can find no proof of it though. Ocado are free to set the price they require for their half of the JV when they choose to sell it. The price they set could be too high for Mark and Spencers meaning Ocado then engage with other potential bidders.."
It is possible. I can find no proof of it though. Ocado are free to set the price they require for their half of the JV when they chose to sell it. The price they set could be too high for Mark and Spencers meaning Ocado then engage with other potential bidders..
Monday looking like a rise again for Ocado shares. FTSE 100 futures heavily down currently. Compulsory masks in UK retail shops and vaccine worries driving online grocery higher.
Hello Neil
Yes, I guess you could possibly be right.
Can anyone confirm?
Chilling,
No bidding auction on 50% Ocado JV with Mks, I think you will find first call is legally written in the agreement.
If the other 50% of Ocado Retail is sold, Ocado are likely to have a good number of offers.
It may be that the highest offer isn't necessarily the best one to accept.
The better offer would be from a bidder who commits to the highest investment in new CFC's. This would I think be acceptable to M&S if they weren't successful in matching offers from other bidders.
The point being that this is all about gaining market share.
Than needs to be the higher the better for Ocado Group to build more CFC's and get more commission on sales.
And for M&S if they can get their products to more customers and build profit without the need to purchase the other 50% that is a win win.
So i think that a mid market player like Morrisons would be the best fit - they could sell freehold property to raise capital.
Or maybe one of Ocado's overseas partners - Kroger for example.
Agree, Ocado needs the retail to cover tech investment. Today’s rise could well be due to the expiry of December options which have been huge. Some companies have seen there SPs subdued for funds to buy and others inflated for funds to sell.
Never trust Deutschmark Bank.
Get in there Jimmy,
It's really great news and most on here are no doubts in your camp.
Where's Neil at now?
Oh happy days graking ! A few of us are miles down on what we brought in at. We get some good news and SP actually goes flying up for a change and you then put the dampner on it ! Have a good day and let us at least enjoy it while it lasts.
There have been big buyer/s here past several weeks, now they have to step up, can't fly under the radar and accumulate anymore.
M&S will be first in the queue but there will probably be others - Morrisons for example or even Kroger.
It is a logical next step though...............
SPECULATION. Thats about all there is. Watch the price drop when reality kicks in
Yes just noticed it on the wire !