Ocado shares have soared 75% – adding nearly £3bn 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 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.
Ocado shares surged 75% to 970p, adding nearly £3bn to the group’s stock market value. At that price the business is worth £6.4bn. This means the company is now worth more than Marks & Spencer, which is valued at £4.8bn, and Morrisons, the UK’s fourth biggest supermarket group, which is worth £5.9bn.
The value of Steiner’s personal stake in the company surged in value by more than £100m after the deal was announced. His shares are worth nearly £250m.
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 but did not report a profit until 2015.