Online Grocer Ocado’s Share Price Jumps on Deal With Morrisons

on May 17, 2013

Ocado’s share price (LON:OCDO) jumped by more than forty percent to record ₤2.92 on the London opening bell on Friday, May 17 after Morrisons (LON:MRW), the UK’s fourth largest supermarket chain, announced a tie-up with the internet grocer.

Morisons revealed on Friday that it had entered into a long term agreement with Ocado, which would enable it to commence online grocery deliveries to customers by January 2014. The supermarket chain said in a statement that its website would have a “clear Morrisons look and feel” and the fulfilment would
come from Ocado’s recently opened Dordon Customer Fullfilment Centre (CFC) in central England.

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Morrisons will pay ₤170 million to acquire Dordon and all the mechanical equipment. It will also invest a further ₤46 million to expand Ocado’s distribution centre and Ocado will get an undisclosed share of the future profit.
“This agreement is a significant strategic step for Morrisons. From a standing start, Morrisons will be competing in the fast growing on-line channel by the end of this year with a really compelling proposition,” Dalton Philips, chief executive of Morrisons, said in the statement. “The customer gets our affordable fresh food delivered by Ocado’s state of the art distribution system. I’m confident that will grow over time to be an operation of real scale and significance whilst creating meaningful long-term value for Morrisons shareholders.”

Ocado said on Friday that the agreement with Morrisons would not affect its own operations and would have no impact on its ongoing contract with Waitrose, which had expressed concern that any deal with its supermarket rival would be a conflict of interest. Waitrose’s chief executive Mark Price told the Sunday Telegraph last week that he “would never knowingly sign a contract with Ocado that agreed to them working with another retail competitor”.

“We will continue to source products under our long term agreement with Waitrose and our customers will continue to benefit from the existing high levels of service, wide range of products and competitive prices that they currently enjoy,” Ocado’s chief executive Tim Steiner said.
**Morrisons Q1 Results**
!m[UK’s Fourth Largest Grocer to Introduce Internet Deliveries by January 2014](/uploads/story/2333/thumbs/pic1_inline.png)

The supermarket chain, which trails behind Tesco, Asda and J Sainsbury in terms of market share, last week reported a decline in underlying sales of 1.8 percent year-on-year in the 13 weeks to May 5 and maintained its full-year guidance. Analysts had expected a fall of 4.1 percent fall. (Morrisons’ Share Price Drops on Fall in Underlying Sales).
Morrisons’ share price rose by 1.53 percent to ₤2.8691 in early morning trading in London on Friday. The stock is up by 9.12 percent in the year-to-date. As of May 14, 13 analysts had rated the stock with a sell rating, six had assigned a hold rating and three had given it a buy rating. Its average rating is a “Hold” with a consensus price target of ₤2.6108.
**Morrison’s share price was ₤2.8750 as of 17.05.2013, 09.20 GMT.**
**Ocado’s share price was ₤2.4960 as of 17.05.2013, 09.20 GMT.**


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