Ocado shares hoisted by buzz over possible Amazon interest

Shares in Ocado Group plc—the U.K.-based online grocery company supplying automation technology to U.S. supermarket giant The Kroger Co.—remain elevated after media buzz of possible acquisition interest by Amazon.

London’s The Times newspaper late last week reported a surge in Ocado’s stock price as “speculation of bid interest from more than one American suitor took hold.” According to the Times reports, which didn’t name sources, “The talk was that technology heavyweights such as Amazon were pondering the merits of an £8-a-share move, with Goldman Sachs and JPMorgan, as it happens, said to be acting for bidders.”

Other business media quickly picked up on the Times report, spurring investors and lifting Ocado’s shares from around £4.29 to a high of about £6.17 on Thursday before prices settled down and hovered around £5.30 on Friday and into Monday trading.

Ocado Group and Amazon declined to comment on the reports, and a Kroger spokesperson said the company had no comment on the reports.

The share price for Ocado has plunged since the start of the year and remains a bottom-level performer in the blue-chip FTSE 100 index, from which the company recently survived relegation—making it a potential acquisition target, according to industry analysts. Ocado’s assets include an online grocery retail operation under a 50/50 joint venture with Marks & Spencer, plus an automation/artificial intelligence/robotics technology business focusing on e-commerce fulfillment. The latter stands as the primary draw for possible buyers, analysts say.

“While any substantial increases in Ocado’s share price is normally associated with news of securing new partnerships, the more than 30% leap on Thursday was due to speculation that the company may be acquired by Amazon,” CFRA Research analyst Danny Yeo Sze Wai said in a research note on Friday. “We think that Ocado’s depressed valuation and its solution segment might be enticing for acquisition, but Amazon will have to deal with potential competition concerns with regulators. However, we are not discounting the possibility of other potential suitors, given the attractive combination of established infrastructure and strong value in Ocado.”

In North America, an Amazon acquisition of Ocado would present a tricky situation for Kroger and Empire Co. Ltd., parent of Sobeys Inc., as both grocers have invested heavily in the Ocado Smart Platform. If Ocado were to fall under the Amazon umbrella, then the online grocery fulfillment infrastructure now being built out by Kroger and Sobeys would come from technology provided by a retail competitor.

Cincinnati-based Kroger in May 2018 unveiled an exclusive U.S. partnership with U.K.-based online grocery specialist Ocado Group to identify sites for about 20 automated customer fulfillment centers (CFCs) over the ensuing three years. The high-tech CFCs use Ocado’s vertical integration, machine learning and robotics to fill e-grocery delivery orders and extend Kroger’s market coverage to a larger geographic footprint, including areas where it doesn’t operate brick-and-mortar stores.

So far, Kroger has announced 17 Ocado CFCs—ranging from 135,000 to 375,000 square feet—and eight are open. Also in operation are 13 Ocado-automated “spoke” facilities ranging from 40,000 to 80,000 square feet. Kroger has said the supporting spoke sites can handle additional online order capacity expand Kroger Delivery service of the CFC “hubs” to up to 200 miles.

Stellarton, Nova Scotia-based Empire, meanwhile, is nearing completion of plans to roll out four Ocado CFCs across Canada to support the growth of its Voilà delivery service. The first CFC in Toronto started deliveries in June 2020, and the second CFC in Montreal launched deliveries in March 2022. The third CFC in Calgary, Alberta, began deliveries in early fiscal 2024, with Voilà service in Alberta getting under way this month. The fourth CFC, in Vancouver, British Columbia, is expected to initiate deliveries in calendar 2025.

“Ocado’s equity has struggled post-pandemic with a rising cost of capital, coinciding with a commercial model that has put a strain on near-term cash flow and the balance sheet in favor of unlocking close relationships with key partners and a long-term annuity stream therefrom,” Jefferies analyst Giles Thorne wrote in a research note on Thursday. “It’s in this context that the overnight news of bid interest from Amazon (and others) should first be seen. The positive response of the equity is likely to outstrip the probability-weighted takeout price. A deeper consideration of the strategic logic and the actual likelihood of an official takeover approach will have to wait for more details.”