Ocado shares have climbed 6.6 per cent since Friday, when it reached the top of the FTSE 100, amid speculation that Marks & Spencer could buy its online grocery venture.
A Deutsche Bank analyst said the supermarket could take over Ocado Retail, having bought a 50 per cent stake for £750 million in 2019.
According to The Telegraph, Adam Cochrane wrote that Marks & Spencer’s cash flow was being saved to recover its investment grade credit rating, which “may be required to buy out Ocado”.
After suffering its first loss in its interim results last year, the high street retail seems to have bounced back from the pandemic.
Its latest half-year profit stood at £160 million after tax, up from £122.4 million in 2019.
Fitch downgraded Marks & Spencer last year to “junk” status, one notch below investment grade, but revised its outlook to “Positive” this week.
However, Moody’s kept its Ba1 downgraded rating – below the investment grade.
Earlier this month, the supermarket said it was “very pleased with the growth opportunities Ocado has presented”.
When the deal was first announced, there were concerns in the City that M&S had overpaid for its stake, but the move has massively boosted its online offering.
Retail analyst Clive Black said a buyout was “one of the most obvious strategic questions for the M&S board” to consider, but could be some way off.
There cannot be a change to the current structure of the deal before the 24/25 financial year without “certain limited and customary exceptions”.
However, sources said that Marks & Spencer “wanted to do a deal they could”.
The supermarket did not have an online offering before the Ocado deal, barring a small-scale tie-up with the delivery firm Deliveroo.
It took a hit in the early months of the pandemic while it was unable to take advantage of the e-commerce boom.
Marks & Spencer’s sales through Ocado brought in £309 million, or 27 per cent of total sales.
Both retailers declined to comment.