Shares in Ocado (LON:OCDO) have jumped in today’s session, while Marks & Spencer (LON:MKS) has been nursing heavy losses as the companies announced a joint venture following weeks of speculation. The deal will see the high street retailer pay £750 million to the online grocer for a 50-percent share in the new venture.
As of 08:50 GMT, Ocado’s share price had added 2.17 percent to 1,011.50p, outperforming the broader UK market, with the benchmark FTSE 100 index currently standing 0.70 percent lower at 7,101.36 points. Marks & Spencer’s share price meanwhile is 8.18 percent worse off at 278.40p.
Ocado and M&S announce JV
Ocado and M&S announced in separate statements this morning that they were creating a new 50/50 joint venture, comprising the online grocer’s retail business and the provision of branding and sourcing from M&S. The high street retailer has agreed to pay Ocado for a 50-percent share of the new JV, comprising £562.5 million in upfront cash and a deferred cash payment of £187.5 million, plus interest, payable five years after completion depending on the satisfaction of certain financial and operational conditions.
The JV, trading as Ocado.com, will combine M&S’ branded food and beverage range with the online grocer’s existing range of own-label and third-party branded products. M&S’ range will become available on the platform by September 2020, replacing Ocado’s current sourcing agreement with Waitrose.
Analysts weigh in on news
The Guardian quoted Jefferies retail analyst James Grzinic as commenting that while the proposed venture looked like a good one for Ocado, the runes were harder to read for the high street retailer.
“We would be wary of the ability for the M&S brand to support a basket size of the magnitude required to make the online economics work,” the analyst pointed out.