Ocado’s move today to hive off half of its UK grocery business to Marks & Spencer for £750 million has moved it one step closer to becoming a pure technology company. Talks of the joint venture were first reported in the Evening Standard yesterday. The news sent shares in Ocado soaring 106p, or 12 per cent, to 992p, yesterday valuing the company at £6.9 billion. The shares rose 32p, of 1.7 per cent, to £10.04.
Mr Steiner’s stake is worth about £230 million and he is due to collect a further £40 million in May from a long-term share bonus scheme. Lord Rose of Monewden, 69, the former M&S chairman and chief executive who heads Ocado’s board, owns £12 million of shares in the online grocer.
The deal with M&S will provide some much-needed capital for Ocado. The company is still investing heavily in its high-tech warehouses, where robots pick and pack customer orders from stacks of grocery crates. Its commitments don’t end there. Under its six licensing agreements, the Hatfield-based company must shoulder some of the cost of building new distribution centres, which eats up cash. It has signed deals with Bon Preu, a Catalan retailer, Casino in France and Sobeys in Canada.
However, last year’s tie-up with Kroger, the American grocery group, propelled Ocado into the big league, sending the shares up 44 per cent in a day and pushing it into the FTSE 100. That agreement will mean that as many as twenty warehouses are built within three years.
Question marks remain over how profitable Ocado can become ultimately. Transporting groceries to customers’ homes is an inherently expensive business. Last year, Ocado’s revenues rose 12 per cent to £1.6 billion, but it lost £44 million on a pre-tax basis.
Mr Steiner said recently that Ocado would have generated significant pre-tax profits if he had wanted it to. “We’ve chosen to invest faster, to invest in more stuff and to create and expand a global intellectual property business,” he said.
