Marks & Spencer confirms joint venture talks with Ocado

Marks & Spencer has confirmed it is in talks with Ocado over the possible creation of a joint venture, following weeks of speculation.

The retailer said there was no certainty that the discussions would result in an agreement, and there was no guaranteed timescale.

However, shares in Ocado soared higher on the news, jumping as much as 12.5% before lunchtime.

M&S shares were also higher, climbing around 4%.

It comes after a report in the Evening Standard suggested that the tie-up could be announced as soon as Wednesday, with M&S paying up to £900 million for a 50% stake in the venture which would give it a food delivery service for the first time.

Ocado’s existing contract with Waitrose, which is coming up for renewal, has added time pressure to the negotiations. The company will need to trigger an 18-month break clause with the supermarket by the end of this week in order to walk away from its longstanding partner.

The potential deal with M&S was first reported in late January, prompting a rise in Ocado’s share which was later wiped out when a fire broke out at its Andover warehouse, denting its sales expectations.

Reacting to confirmation that the companies are in talks, Bernstein analyst Bruno Monteyne said the joint venture structure would be beneficial for Ocado, which still uses its retail business to demonstrate the capabilities of its technology.

He added that M&S could be a useful partner for the launch of Ocado Zoom, a one-hour delivery service.

“Ocado Zoom could be a major growth path for Ocado,” he said. “We believe the food of M&S (ready meals, quality food) is perfectly suited for this more upmarket convenience shopping. M&S would boost the potential of Zoom in the UK.”