Ocado Group Plc, (OCDO) the U.K.’s largest online-only grocer, fell in London trading after repeating that any partnership with William Morrison Supermarkets Plc (MRW) won’t involve a takeover or Morrison acquiring a stake.
Ocado slid 1.8 percent to 165 pence after gaining 12 percent yesterday on speculation that Bradford, England-based Morrison may buy into the business as part of a deal that would mark its entry into the online grocery market.
The speculation was “very questionable,” said Clive Black, an analyst at Shore Capital in Liverpool, England. “It wouldn’t be in Morrison shareholders’ interests anyway.”
The Daily Mail said April 24 that Morrison was considering a bid of more than 1 billion pounds ($1.55 billion) for Ocado Discussions between the two parties that were first disclosed on March 14 are continuing, London-based Ocado said yesterday in a statement after markets closed, adding that there is no certainty that an agreement will be reached.
The basis for the discussions is how Morrison could use spare capacity at Ocado’s recently-opened second warehouse in Dordon, central England, to break into the online grocery market, according to two people familiar with the matter.
Ocado said last month that the Dordon facility was handling 10,000 to 15,000 orders a week, a tenth of what its main facility in Hatfield, southern England, handles at peak times.
Ocado’s decline today reduced the company’s market value to 954 million pounds. Morrison rose 0.4 percent to 286.30 pence.
Morrison is the only one of the four main U.K. supermarket companies not to offer groceries online and an alliance with Ocado would represent a way of quickly making up for lost time.
The retailer said last month it would spend 1.1 billion pounds to start an online groceries business next year, add more convenience stores and revamp existing shops. The online service will commence in January 2014, regardless of an agreement with Ocado, it said at the time.
Morrison favors Ocado’s method of delivering food from a central distribution center, rather than using local stores to fulfil orders like Tesco Plc, (TSCO) J Sainsbury Plc and Wal-Mart Stores Inc.’s Asda, according to the people, who declined to be identified because no agreement has yet been reached.
Using a central hub would lead to fewer substitutions of products, one of the main online shoppers’ irritants, they said.
Morrison has been influenced in its planning by Fresh Direct, the New York-based online grocer in which it bought a stake two years ago, the people said.
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