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OPINION

Should Ocado have addressed its 'uncomfortable' share spike?

Should Ocado have addressed its 'uncomfortable' share spike?
January 20, 2016
Should Ocado have addressed its 'uncomfortable' share spike?
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Traditional supermarkets are under intense pressure to change the way they serve customers. The ‘weekly shop’ is dying a death as consumers prefer to shop in smaller quantities, but more often; or buy online and have their goods delivered. Fresh food delivery is becoming a competitive market, especially now Amazon has launched its pantry service in limited locations across the UK. If the speculation is right and Amazon were considering a bid, it's possible the head honchos there feel Ocado’s existing distribution network could be extremely useful if it decides to roll out its fresh delivery concept more widely.

Waiting at the checkout

For Ocado shareholders, if any bid were to materialise, this would be welcome news. Shore Capital analyst Clive Black said bosses there “would bite Amazon’s hand off” if the internet giant came knocking, especially since in his view Ocado has proved its business model "doesn’t work”.

A Daily Mail article claiming Amazon "may be about to deliver a tie-up with Ocado" sent the share price up a staggering 16 per cent in early trading yesterday. Such large movements can prompt statements from companies but there’s been no market update from either Amazon or Ocado to deny or confirm the negotiations. A spokesperson for Ocado declined to comment on market speculation. The wider question is worth asking: should such a company have put out a statement to the market quashing the rumours?

Mr Black publicly described the morning’s events as "uncomfortable". He said it was questionable as to whether there'd been "an orderly market" in the wake of the article but acknowledged the lack of any official statement means "we have to assume that there has been no official board to board contact". However, he added the situation could be "a question for regulators".

Whose line is it anyway?

But which regulator is it a question for? First, it is not the Financial Conduct Authority's remit, but that of the Takeover Panel. The Takeover Code is open to interpretation, like most legislation. Reading between the lines, share price movements of more than 5 per cent in any one day's trading must have a sensible explanation. Very often they do, by way of a positive trading update or profit upgrade. However, in the Takeover Panel's eyes, a formal approach for Company A by Company B should be addressed.

What constitutes a 'formal' approach? Well, it doesn't have to be a written set of agreed terms. It could include meetings between management teams, phone calls - anything which constitutes active negotiations.

Interestingly, companies are under no regulatory obligation to issue what's known as 'negative' statements denying rumour or speculation - as long as there's absolutely nothing going on at all. It's up to individual companies to decide what constitutes 'good practice' on that front, so it's only right to assume there has been no official contact - as Mr Black said in his note this morning.

Only when advisers get involved do statements tend to materialise. That's because lawyers, bankers and the rest don't want regulators on their backs - in general, it's in their interest to toe the line. The Mail article hinted Amazon has "advisers beavering away on a potentail approach for the British online supermarket". The lack of a statement, then, again suggests there have been no talks between the two businesses. Due to its US listing, Amazon will be subject to different rules in this situation.