Value slashed £600m but boss confident

MARKS & Spencer was yesterday accused of striking a “desperate” deal by paying up to £750million for a tie-up with internet grocer Ocado.

The high-street giant is buying half of Ocado’s retail arm so it can begin selling food online.

M&S boss Steve Rowe called it “transformational” and “the biggest deal M&S has ever done”.

But £600million was wiped off M&S’s value as investors were asked to stump up £600million, while seeing their dividend slashed by 40 per cent.

The joint venture marks M&S’s belated bid to break into the £175billion online grocery market.

M&S will replace rival Waitrose, which has supplied Ocado with products for two decades, from next year.

Rowe said launching its own online grocery business wasn’t viable because of its small average “basket size”.

Ocado, on the other hand, stock more than 50,000 products.

The tie-up gives M&S access to Ocado’s 700,000-plus customers, although experts questioned how many might switch to Waitrose.

M&S is buying hardly any Ocado assets, such as its hi-tech depots.

Those remain with the rest of Ocado, which will earn fees for providing services.

The deal, sealed at 6am yesterday, will see M&S pay an initial £562million, with the rest in five years if it all goes well. M&S said it would lead to at least £70million in cost savings.

Ocado products will also be sold in M&S stores.

Rowe said: “We think we have paid a fair price.”

Ocado boss Tim Steiner said: “It is a fantastic deal for all parties.”

Peel Hunt was among brokers to give the deal the thumbs-up.

But Patrick O’Brien, of research firm GlobalData, said: “Ocado’s deal with M&S shows how desperate the latter was to be able to get into food online.”

The 12 per cent slump in M&S’s shares left the retailer, founded in 1884, worth £4.3billion.That’s much less than Ocado’s £7billion after shares in the firm, only set up in 2000, jumped three perr cent. Oil Royal Mail RSA RBS J Sainsbury SSE Severn Trent Serco Sports Direct Shell Smith & Nephew Smiths WH 277.7 526.6 263.3 231.0 1199.0 2013.0 130.0 265.0 2384.5 1427.0 2084.0 -0.3 -7.4 +3.3 -2.8 +10.0 -16.0 +0.8 -5.8 -14.0 +2.5 -26.0.