Marks & Spencer agrees £750m food delivery tie-up with Ocado

Marks & Spencer is teaming up with Ocado in a merger that will allow the high-street retailer to offer a home delivery service for the first time.

Shares in the two companies “surged” on Tuesday after both “rushed out identical statements that confirmed they were in discussions over a deal”,  The Guardian reports.

M&S will pay £750m for a 50% share of Ocado’s UK online grocery business, in a merger that will see M&S “branded products replace Waitrose in Ocado’s range of goods that it sells online to customers”, City A.M. reports.

The joint venture will retain the Ocado name and “will deliver M&S products from September 2020 at the latest”, when the online giant’s deal with Waitrose expires, the BBC adds.

“Effectively, Ocado will be split in two,” says the London Evening Standard, which notes that the move should satisfy “the desires of chief executive and co-founder Tim Steiner to focus on licensing its tech with retailers around the world”.

Goldman Sachs is advising Ocado, while Rothschild is representing M&S.

The high-street chain will fund the deal by selling £600m of shares and by cutting its dividend payout to shareholders by 40%.

M&S chief executive Steve Rowe said: “We think we’ve paid a fair price. I have always believed that M&S Food could and should be online. Combining the strength of our food offer with leading online and delivery capability is a compelling proposition to drive long-term growth.”

At least a third of the company’s business will be online once the venture begins, Rowe added.

But not everyone is convinced that the merger is a good thing. 

Neil Wilson, chief market analyst at Markets.com, said: “M&S’s purchase of Ocado’s UK retail business looks rather like one of its own ready meals - expensive, not very good for you but easy, quick and ready to heat up.”