Ocado M&a Deals Possibilities

A merger of equals, which drives growth and consumer insight for both entities, will potentially be successful. Both firms expressed a desire to expand geographically and stretch their respective portfolio breadths. Constellation Brands would gain greater access to the very competitive UK wine space thanks to Ocado’s extensive distribution setup in the UK. Considering product offering, Ocado has most recently attributed its 30 % growth in customer base to its efforts to appeal to a greater customer demographic. Constellation Brands would do well to assist in supplying this market as we supply premium to popular brands of alcohol and can suit this growing customer base in the UK. Furthermore, the firm has identified a key market segment which they term “millennials”- people who came of drinking age after the year 2000. Traditional wine purchasing is too dated and complex for this segment and as such quick, convenient purchasing and Ocado’s online purchasing platform is the perfect solution for Constellation Brands should they embrace these millennials.

Legality of the merger is not an issue because the diversity in product offering will not lead to anti-competitive practices. Ocado’s food offering and Constellation’s alcoholic beverage offering are merely complementary, which if anything could make the pricing of other food retailers more competitive in the market. The equity deal will entail both firms delisting from their respective exchanges and a merged entity will relist. The stock of the new entity will be issued according to the market value proportions of the two firms (adjusted for exchange rate differences).

After a look at Ocado’s latest full year financials dated 30 November 2014, Ocado’s debt –to-equity ratio is far below that of Constellation Brands sitting at 0.757 to a respective 1.23. This presents opportunity for the merged entity to be able to take on more debt as the food retailed is not overly geared and the combined asset pool will...