..and what does it mean for investors?
Over on The Motley Fool there is an article (and some debate) about whether the potential tie-up between Morrisons and Ocado makes sense. News of this potential marriage — not in the merger sense — sent Ocado shares a lot higher and Morrisons shares a little higher today. That’s because it makes “perfect sense” for both companies… in the short term.
Ocado’s original raison d’etre was to provide an on-line delivery service on behalf of Waitrose, so it has the perfect template to provide the same thing for Morrisons. Having stayed out of the on-line shopping and delivery game for arguably too long, this is the quickest and least risky way for Morrisons to plug the gap in it’s offering.
I’ve seen other companies, particularly auto breakdown companies such as Green Flag (I think), use someone else’s fleet to establish a national presence in the short term… before eventually rolling out their own. And I think I’m right in saying the same about the original Waitrose / Ocado set-up. I reckon Morrisons will use Ocado to plug the short-term gap while working on their own home-grown web site and delivery solution.
So one possible scenario is that Ocado shares will continue to rise — after a possible “correction” from today’s rise — until Morrison’s true intentions become clear in the fullness of time. Then they will decline over time as they (Ocado) run out of supermarkets in need of an on-line delivery facility in a hurry.
So I know exactly what will happen, but will I make money from it? Probably not, because I know what will happen but not when. Being “right” isn’t enough, and timing is everything, and the market can stay irrational longer then I (and you) can stay solvent 🙁
Want another supermarket story? Here’s one.
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Disclaimer: this posting is for general education only; it is not trading advice.