Share of online supermarket Ocado skyrocket on U.S. deal

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UK-based delivery service Ocado has signed an exclusive USA partnership agreement with retailer Kroger, which will give Kroger access to Ocado's Smart Platform technology.

Kroger will be Ocado's exclusive partner in the U.S. and the United Kingdom company said it had ended discussions with Kroger's rivals. Kroger will pay undisclosed monthly exclusivity and consultancy fees, which will offset the total cost of the deal that has yet to be agreed. Those fees will partly reduce Ocado's future fees from the deal, but should make its initial outlay more affordable.

It has struck partnerships with Groupe Casino in France, Sobeys in Canada, and ICA Group in Sweden.

Ocado shares were up 44 percent to 7.96 pounds at 0740 GMT.

"Ocado's unique, proprietary and industry leading technology is set to transform the shopping experience of consumers around the world", Steiner said.

While the financial terms of the deal are yet to be fully ironed out, Ocado said Kroger would take a 5% stake in its business - worth approximately £183m ahead of Thursday's market opening. Ocado Solutions is responsible for corporate partnering.

The two companies said they were already looking for sites for their first three warehouses and planned to identify up to 20 within the first three years of their deal.

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Ocado chief executive Tim Steiner said working with Kroger to transform the way in which USA customers bought groceries represented "a huge opportunity to redefine the grocery experience" for Kroger customers.

Kroger, who has the second biggest grocer in the U.S. after Walmart, also agreed to buy a 5% stake in the United Kingdom online supermarket.

Even though Ocado remains the #13 most shorted stock, according to FCA disclosure rules, this is an improvement over its position in July 2016, when it was the most shorted stock with 21.37% of shares out on loan and 16% in November 2017, before the first deal came through and the company began proving the sceptics wrong.

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

Ocado said it expected the earnings impact of the deal to be neutral in full-year 2018.

Ladd said he also advised Kroger to evaluate acquiring Ocado for around $2 billion, although Thursday's deal suggests Kroger is not pursuing this advice.

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