City Talk: Ocado bid possible

Online grocer Ocado's much-heralded debut on the stock market recently has failed to convince investors. On its first day the share price dropped by 14% and this was after Ocado had cut its offer price to 180p.

Ocado's management three ex-Goldman Sachs bankers had hoped the shares would be priced for the flotation at between 200p and 275p. The performance has been blamed on lack of investor interest and Ocado's loss-making history the company has yet to make a profit.

While many in the grocery sector doubt that Ocado has the business model ever to make a profit, the first major slump in the share price was due to hedge funds betting vast amounts of money on Ocado's share price plunging. The share price fell to 155p in early trading, before recovering to 167p giving Ocado a market price tag of 869m.

Ocado's boss Tim Steiner said: "This is a temporary market let's see where it is in two years' time and we will then see who is right and who is wrong."

Ocado's share price slide into the bargain basement opens up the possibility of an opportunistic bid. Jorn Rausing, the Tetra Pak billionaire, invested 15m in Ocado back in 2003, and took the opportunity to increase his holding in Ocado by buying shares worth 4m in the recent flotation. Around 40% of the shares are earmarked for British investors. European and American investment funds will take around 30% each.

M&S urges caution

Marks & Spencer has warned that consumer confidence is likely to be eroded by the massive cut-backs revealed in the recent emergency Budget. Marc Bolland, M&S' new boss, warned that the retail industry needed to be cautious over the next nine months, as austerity measures and the VAT increase make themselves felt.

The warning came after M&S' share price fell back by almost 3% on one day recently, but also after the firm announced robust first-quarter sales. Like-for-like sales in the UK rose by 3.6% over the 13 weeks to 3 July. This was much better than analysts' earlier forecast that M&S' sales would rise by 2.5%. Sales of food during the quarter rose by 1.5%.

R20 stays loss-making

Robert Tchenguiz, the venture capital millionaire, who used his R20 company to buy huge share stakes in Sainsbury's and Mitchells & Butlers prior to the global financial collapse, has now seen it record a second-year loss of 8m.

However, this was significantly less than the 31m loss made in the previous year.