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M&S and Ocado announce new Joint Venture

M&S and Ocado announce new Joint Venture

Marks and Spencer has announced the creation of a new 50/50 Joint Venture with Ocado, the UK’s leading pure play digital grocer, that will transform online grocery shopping for UK consumers. Under the JV, M&S is acquiring a 50% share of Ocado’s UK retail business, which will be supported by Ocado Smart Platform, for a total consideration of up to £750m.

The JV combines the strength of M&S’s brand and its leading food quality and innovation with Ocado’s unique and proprietary technology to create an unrivalled online offer for our customers. In bringing the best together the JV will benefit existing and new UK customers, colleagues and suppliers. The JV will trade as but benefit from access to M&S’s brand, products and customer database from September 2020 at the latest, following the termination of the current Waitrose sourcing agreement and migration of JV sourcing to M&S.

Joint Venture highlights

• A strategically compelling route to unlock growth for M&S Food through a profitable, scalable presence in the online grocery market, the UK’s fastest growing channel;

• A fully aligned partnership with complementary skills and assets; M&S, one of Britain’s highest rated food brands with strong product development capabilities, and Ocado’s pioneering OSP technology and operational efficiency;

• Long-term value creation opportunities for both M&S and the JV. Customers will benefit from the broadest range in UK food retail and the JV will benefit from access to over 12m M&S Food shoppers;

• For the 52 weeks ended 2 December 2018, the newly created JV would have generated revenue1 of £1.46bn and EBITDA of £34.2m, taking into account the newly created OSP contract and other fees and services. Furthermore, under the new sourcing arrangement the JV will no longer incur sourcing fees payable to Waitrose, which were over £15m in 2018.

Transaction highlights

• Significant potential synergies for M&S Food estimated of at least £70m per annum to be achieved by the third year following completion. These are expected to arise from increased buying scale, harmonised buying terms, conversion of M&S customers who currently account for c. one third of online grocery spend, joint marketing, shared innovation, and complementary category and regional mixes;

• The transaction will be primarily financed by equity. The Board intends to conduct a Rights Issue to raise up to £600m, which will be launched in due course, and which is fully underwritten on a standby basis by Morgan Stanley;

• Concurrently the M&S dividend per share is being reset by 40% to a sustainable level from which to grow in line with earnings over time. As a result, we anticipate paying a final dividend in respect of 2018/19 of 7.1 pence per share;

• Current trading remains in line with Board expectations.

Steve Rowe, M&S CEO said: “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. “Our investment in a fully aligned joint-venture with Ocado accelerates our Food strategy as it enables us to take our food online in an immediately profitable, scalable and sustainable way.

“Combining the magic of M&S Food with Ocado’s leadership in online technology allows us to transform UK online grocery shopping by offering customers the broadest, most innovative and relevant range in UK food retail with award-winning service. Our partnership with Ocado will create shared value for our customers, colleagues, supplier partners and shareholders, operating with a common sense of purpose and values. “This is a transformational step forward in shaping the future of M&S and in becoming a truly digital first retailer with at least a third of the business online.”

Tim Steiner, Ocado CEO said: “We are delighted that our UK retail business will become a joint venture with M&S. This is a transformative moment in the UK retail sector with the combination of two iconic and muchloved retail brands set to provide an unrivalled online grocery offer. “We believe that this is the best outcome for customers, offering even greater range, service, quality and value; the best outcome for our Ocado Solutions partners, creating a stronger platform from which to innovate and develop our unique and proprietary technology; the best outcome for Ocado Solutions with a further endorsement from another leading global retailer; and the best outcome for our financial stakeholders, unlocking the significant value embedded in Ocado Retail. “The combination of Ocado and M&S will allow us to grow faster, add more jobs, and create more value, as we lead the channel shift to e-commerce here in the UK. We are very excited by the many opportunities ahead.”

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