Ocado shares soared nearly 45% on Thursday – adding £1.6bn to the value of the company – after the online grocer unveiled a major push into the US market with a deal to provide its technology to the American grocery giant Kroger, the world’s third largest retailer.
Tim Steiner, a founder and chief executive of the UK online grocer, said it was a “transformative” deal in which the two firms would build 20 automated warehouses across the US over the next three years.
Kroger has nearly 2,800 shops across 35 US states and annual sales of $122bn in 2017. It will take a 5% stake in Ocado as part of the deal.
At one point, Ocado shares had jumped 81% to £10 and despite slipping back from that level they closed 245.2p better at 797.2, valuing the business at £5.3bn. This means the company is worth more than Marks & Spencer, which is valued at £4.8bn.
The value of Steiner’s personal stake in the company surged in value by more than £60m by the time the stock market closed. His shares are worth nearly £200m.
At its current share price, Ocado would surge into the FTSE 100 index of Britain’s biggest companies, which will have its next quarterly reshuffle on 30 May.
“Ocado’s unique, proprietary and industry-leading technology is set to transform the shopping experience of consumers around the world,” Steiner said.
“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.”
Rodney McMullen, the chairman and chief executive of Kroger, said the partnership would allow it to “speed up our efforts to redefine the food and grocery customer experience”.
Ocado is providing its technology to Kroger in the US on an exclusive basis and the deal is the latest foray into international markets for the UK group. It has struck partnerships with Groupe Casino in France, Sobeys in Canada and ICA Group in Sweden. Ocado also works in partnership with Morrisons in the UK.
Laith Khalaf, a senior analyst at Hargreaves Lansdown, said that as one of the most shorted stocks in the UK – where investors bet that a firm’s share price will fall – Ocado’s deal with Kroger was a “poke in the eye” for the hedge funds who have bet against it.
“Ocado is making great strides in the global grocery market and inflicting serious financial pain on those who have bet against it,” Khalaf said.
“The company is known in the UK as an online supermarket but that’s just the tip of the iceberg as Ocado is primarily a technology and logistics firm with the potential to license out its services to grocers around the world.
“The short sellers were hoping Ocado wouldn’t deliver on its international expansion plans. That position now looks like a badly busted flush.”
Ocado was founded in 2000 by three former Goldman Sachs bankers, including Steiner, but did not report a profit until 2015. The other two founders were Jonathan Faiman, who left the company in 2010, and Jason Gissing, who left in 2014 to work on environmental and social causes.
John Lewis was one of the original backers of Ocado, investing £68m and taking a 29% stake. However, the relationship between the two businesses became increasingly fractious. Waitrose – part of the John Lewis Partnership – still sells products through Ocado’s online service but the supermarket chain also operates its own delivery service for orders placed on Waitrose.com.
Ocado floated on the stock market in 2010 at 180p a share. The directors had been hoping to sell shares at between 200p and 275p but were forced to slash the asking price for shares as they struggled to find investors.
Lee Wild, the head of equity strategy at Interactive Investor, said Ocado was a “marmite stock” for years. “Only last November when it struck a long-awaited international deal in France did attitudes change. This [Kroger] is the big one for Ocado.”
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