Amazon to buy Ocado – now that would be interesting

What Amazon UK needs to do is buy Ocado as an entry point into making a meaningful mark in the UK food sector.

By recently appointing former Asda director Doug Gurr to operate in a strategic role the potential for such a transaction must have moved significantly closer. There are certainly some sound reasons why such a marriage would work.

Firstly, there is undoubtedly some similarities between the profiles of shoppers at both these retailers. Secondly, the marketing spend that has been particularly onerous for Ocado would fall away with the mighty reach of Amazon.

It’s also difficult to see there being too much resistance to the takeover from the Ocado camp, with the co-founders seemingly having varying levels of interest in continuing to spend time within the business.

An addition, City analysts have hardly been positive on the long term prospects for the company as an independent entity and some have been aggressively negative.

As for the big investors in the business, the current share price of 177p (July 28) is virtually unchanged from the July flotation level of 180p so with a bit of a bid premium there would probably be few complaints even from those who bought in on day one.

For those who got in at the 12-month low of 122p this would represent a healthy gain. The current market capitalisation of Ocado is £1 billion, which would be decent bite to swallow for Amazon but it has shown itself to be unafraid of making acquisitions that propel it forward and sate its appetite for building scale.

But the one thing Amazon cares about passionately is cash-flow and Ocado is not overly cash generative. However, it could be a differrent scenario with the Amazon engine installed.

Retailinsider.com is reliably informed that Amazon has looked closely at Ocado but maybe its hesitancy on making a move is based on its belief that Ocado’s value will diminish  over time and it can therefore wait.

What could potentially change its mind is Gurr. If he thinks such a deal has legs then maybe he is the man who could convince Amazon founder Jeff Bezos to pull out the cheque book (they still exist). It would certainly make for an interesting UK online grocery sector.