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UK’s M&S Pays £750M To Seal Ocado Online Food Tie-Up

Published on Feb 27 2019 9:28 AM in Retail tagged: Trending Posts / M&S / Ocado / Joint Venture

UK’s M&S Pays £750M To Seal Ocado Online Food Tie-Up

British retailer Marks & Spencer (M&S) has agreed on a joint venture with online supermarket pioneer Ocado that would give M&S a full online food delivery service for the first time, the companies said on Wednesday.

Under the deal M&S, Britain's best-known stores group, will buy a 50% share of Ocado's UK retail business for up to $750 million.

M&S said it will finance the deal from a rights issue of shares to raise up to £600 million and a 40% cut to its dividend to "a sustainable level".

Shares in M&S were down 7% at 0810 GMT, reflecting the equity raise and dividend cut, while Ocado's were up 3%.

Both stocks had risen sharply on Tuesday after talks between the companies were confirmed following months of speculation over a deal.

Struggles

M&S, a 135-year-old clothing and food retailer, is a mainstay of Britain's shopping streets but has struggled to cope with the rise of fast fashion, discounters and online shopping.

The firm currently sells wine, flowers and clothes online, but does not offer a full delivery service for its food, putting it at a disadvantage to rivals such as Waitrose and Britain's two biggest supermarkets Tesco and Sainsbury's.

"I have always believed that M&S Food could and should be online," said M&S Chief Executive Steve Rowe.

"Our investment in a fully aligned joint-venture with Ocado accelerates our food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way."

The joint venture will trade as Ocado.com but benefit from access to the M&S brand, products and customer database from September 2020 at the latest, following the termination of Ocado's sourcing agreement with upmarket grocer Waitrose, which is owned by the John Lewis Partnership.

Waitrose confirmed that its commercial arrangement with Ocado will end in September 2020.

Broader Range

M&S and Ocado said customers will benefit from access to a broader range of products and the joint venture will enjoy access to over 12 million M&S food shoppers.

The companies said that for the year to 2 December 2018, the newly created joint venture would have generated revenue of £1.47 billion and core earnings of £34.2 million.

M&S said the deal would provide potential synergies of at least £70 million a year. These would be achieved by the third year following completion.

News by Reuters, edited by Checkout. Click subscribe to sign up for the Checkout print edition.

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