UPDATE 4-Ocado cuts IPO price range to win over investors

* Shares priced at about 180 pence a share - source

* Almost 25 pct below midpoint of old 200-275 pence range

* Firm raises 200 mln stg from selling new shares - sources

* Some shareholders sell, fewer than expected - source

(Adds more comments from source)

By Alex Chambers and Mark Potter

LONDON, July 20 (Reuters) - British online grocer Ocado cut the price of its initial public offering (IPO) by almost a quarter to win over investors who balked at its valuation, which is still higher than sceptics think it should be.

A source close to the matter said on Tuesday Ocado, which sells the products of upmarket grocer Waitrose, sold shares at about 180 pence -- the bottom of a new price range of 180-200 pence that was cut from a previous target of 200-275 pence.

The firm raised 200 million pounds ($304 million) from selling new shares, which it will use to pay down debt, increase capacity in its existing distribution warehouse and start building a second, two people close to the flotation said.

The pension fund of Waitrose's parent John Lewis [JLP.UL] and banking group UBS (UBSN.VX) both sold about half of their stakes of 26.5 percent and 9 percent respectively, one added.

But the total sold by existing investors was less than the 200 million pounds originally expected, the source said, adding Chief Executive Tim Steiner, who had been planning to sell a small number of shares, had kept his stake in full.

A price of 180 pence a share would give Ocado a market value prior to the fundraising of about 720 million pounds.

That is still well above some analysts' estimates, which have valued the company at no more than 500 million pounds.

"In the circumstances, I don't think they can be too unhappy," Arden Partners' analyst Nick Bubb said.

"I'm sure they will feel slightly humiliated at having to cut the price ... but at least it should ensure a more orderly after-market," he said, referring to fears Ocado shares might fall sharply at the start of trading if priced too high.

A person close to the company said it had cut the price range in part to get a higher quality group of investors, and that these included "blue-chip institutions" from the UK, United States and continental Europe.

TOUGH MARKETS

Founded by three former Goldman Sachs bankers in 2000, Ocado sales have soared but it has yet to make a pretax profit.

Analysts have questioned whether its model of filling orders from a large warehouse will ever be as profitable as filling them from stores like Ocado's main rivals Tesco (TSCO.L), Asda (WMT.N) and J Sainsbury (SBRY.L).

They are also worried about Waitrose's plans to expand its own online business into Ocado's heartland in and around London next summer.

Investors have driven a hard bargain with new issues this year in turbulent financial markets. Companies like fashion retailer New Look and, last week, oil and gas firm Fairfield Energy have postponed their flotations. [ID:nLDE66D1S0]

Others, like fashion firm Supergroup (SGP.L) and fund group Jupiter (JUP.L), have succeeded in their IPOs, though often only after lowering their prices.

Ocado, whose shareholders also include Tetra Pak billionaire Jorn Rausing, Procter & Gamble (PG.N) and the investment vehicle of former U.S. vice president Al Gore, said a share sale to customers which had closed will reopen and run until Friday.

Customers who subscribed for shares in the previous range will be allowed to withdraw their orders. These included several thousand individuals, though they accounted for only a fraction of all the shares being sold, a person close to the matter said.

At 180 pence a share, the stakes owned or linked to Ocado's founders -- Tim Steiner, Jonathan Faiman and Jason Gissing -- would together be worth about about 137 million pounds.

Goldman Sachs (GS.N), UBS (UBSN.VX) and JP Morgan Cazenove are advising Ocado, with a junior syndicate of five other banks. ($1=.6583 pounds) (Additional reporting by Chris Vellacott; editing by Kate Holton, Greg Mahlich)