Ocado shares jump more than 40% on news of US deal

Ocado has struck a partnership deal with Kroger that will take its technology into the US for the first time and see the American grocer take a 5 per cent stake in the British group.

The deal gives Kroger the rights to use Ocado’s technology for grocery and other food distribution related activities in the US on an exclusive basis, in exchange for “monthly exclusivity and consultancy fees which will offset in part the total fees that are expected to be agreed between the two parties”, Ocado said.

Ocado shares jumped more than 40 per cent after the news on Thursday morning, to 781 pence.

The deal with Kroger is the latest in a string of tie-ups announced by Ocado in recent months, soothing market fears that the retail technology and logistics group was struggling to find takers for its ambitious model. Earlier this month, it inked a deal to build Swedish supermarket ICA’s online grocery business, following deals with Canadian grocer Sobeys and French supermarket operator Groupe Casino.

The British supplier of technology and robotic warehouses to the retail industry has pledged to drop talks with other US-based retailers, in exchange for the exclusivity deal. Kroger and Ocado were “already working to identify the first three sites in 2018 for development of new, automated warehouse facilities in the US”, and would identify “up to a total of 20 over the first three years of the agreement”, the UK company said.

If Kroger fails to commit to the target capacity, it will have to pay compensation to Ocado, and could lose exclusivity rights in the “longer term” if market share targets are missed or it does not order enough of Ocado’s distribution centres each year.

As part of the partnership, Kroger will subscribe for 33m new shares in Ocado, equivalent to 5 per cent of its current share capital, at a value of £183m, Ocado said.

Kroger chief executive Rodney McMullen said the partnership would speed up the US grocer’s efforts to “redefine the food and grocery customer experience — creating value for customers and shareholders alike”.

“The opportunity to partner with Kroger to transform the way in which US customers buy grocery represents a huge opportunity to redefine the grocery experience of Kroger’s customers and create value for the stakeholders of both Kroger and Ocado,” added Tim Steiner, chief executive of Ocado. “As we work through the terms of the services agreement with Kroger in the coming months, we will be preparing the business for a transformative relationship which will reshape the food retailing industry in the US in the years to come.”

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