Ocado shares soar as it lands major deal with Kroger to enter the U.S.

[May 17, 2018]   By Paul Sandle

LONDON (Reuters) - Britain's online supermarket Ocado clinched a game-changing deal with Kroger as its exclusive partner in the U.S., securing its entry into the world's biggest market and sending its shares up 50 percent.

The agreement, Kroger's response to the competitive threat posed by Amazon's <AMZN.O> purchase of Whole Foods, takes Ocado's home-delivery platform into the United States for the first time and marks the fourth major deal it has signed with supermarkets around the world in six months.

Ocado's Chief Financial Officer Duncan Tatton-Brown said the partnership was "transformational".

"The scale of the proposed transaction, and therefore the quantum of its economics, is wholly different to those we've already signed," he told reporters on Thursday.

He said Kroger, which had sales of $122 billion in its last fiscal year, was the grocer best-positioned to succeed in the U.S. sector. It will now discontinue discussions with other U.S.-based retailers.

Shares in the group, which listed in 2010, jumped over 50 percent in early Thursday to trade at a record high.

As part of the deal, Kroger will take a stake in the British company, equivalent to 5 percent of the existing share capital valued at 183 million pounds ($247.5 million), Ocado said.

"We think this is just about as positive a deal as could have been expected to have been announced by Ocado," analysts at Barclays said.

Delivery vans are lined up prior to dispatch at the Ocado CFC (Customer Fulfilment Centre) in Andover, Britain May 1, 2018. REUTERS/Peter Nicholls/File Photo

"The company now has an extremely credible partner in the largest grocery market in the world."

Ocado's technology automates the processing and packing of online grocery orders, using hundreds of robots in technologically advanced order fulfillment centers.

Kroger will identify at least 20 sites to build new, automated warehouse facilities in the United States, Tatton-Brown said, more than all of the facilities Ocado has built or is planning to build for all its other partnerships to date.

The two companies are working to identify the first three sites in 2018, the company said.

Tatton-Brown said the detailed financial terms still had to be agreed, but the deal was expected to be neutral in respect to earnings in the full-year 2018.

(Reporting by Paul Sandle; editing by Kate Holton and Elaine Hardcastle)

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