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Why Marley Spoon shares are going gangbusters on Woolworths deal

The Marley Spoon (ASX: MMM) share price is up an incredible 61% to 71 cents today after it announced supermarket giant Woolworths Group Ltd (ASX: WOW) has agreed to tip $30 million into funding the food delivery start-up.

According to an announcement around $8.6 million of the investment will be used to repay some Marley Spoon debt, with the rest used as funding to grow the Marley Spoon business in Australia in supporting its “transition to profitability”.

Marley Spoon is actually a Germany-based business that primarily operates in Europe but chose to list and raise money in Australia.

The deal looks an obvious positive for Marley Spoon, but might leave Woolies shareholders asking what they are getting out of the investment?

Well $25.95 million of the “investment” is actually a loan from Woolworths that bears interest at a fixed rate of 7% pa. While in return for the remaining $4.1 million Woolies is receiving 8.2 million Marley Spoon shares at 50 cents a pop.

“This partnership gives Woolworths exposure to the high- growth ready-to-cook meal kits segment and aligns with our ongoing goal of meeting our customers’ needsfor healthy and convenient meal solutions,” Brad Banducci, the Woolies CEO, commented.

Assuming Woolworths gets its loan repaid then the most it’s putting on the line is $4.1 million less the substantial interest on the loan. 

As such both businesses could turn out winners if Marley Spoon ever takes off in what is a ferociously competitive and generally loss-making home delivery market for food.

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Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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