Morrison’s deal added £2 billion to Ocado valuation

Since Ocado signed its licensing deal with Morrison’s the financial footings and reputations of both organisations have diverged somewhat.

Prior to the deal last year the Ocado business model was still being aggressively questioned by City analysts and its share price was sitting at 199p – on May 17 . The arrangement pushed the shares up 35% on the day to 270p.

Although the £200 million tie-up was regarded as a bit of a coup financially for Ocado – as it seemed rather a highly priced deal and put much-needed funds into the firm’s kitty – it has ultimately proved to be peanuts compared with how much the deal has fuelled a rise in the share price of Ocado.

With the shares now standing at 524p the market capitalisation of Ocado has been boosted by a chunky £1.86 billion to £3 billion. In what has proved transformative for Ocado the deal moved the company from a loss-making lowly-rated UK food retailer to a much more highly rated technology firm that has the potential to licence its intellectual property internationally.

The £200 million pales almost into insignificance in financial terms but its impact on perceptions has clearly been worth many more hundreds of millions of pounds.

In contrast, Morrison’s fortunes have deteriorated. Under pressure from the discounters and falling like-for-like sales its share price has been on the retreat. From a price of 283.6p at the time it announced the tie-up the shares now stands at 253p. This represents a fall in its market capitalisation of £687 million.

Currently the management of Morrison’s is facing a fight from some new shareholders to its register who are agitating for change – and sitting atop their agenda is a sell-off of some of the valuable freeholds of Morrison’s superstores.

Although the Morrison’s (powered by Ocado) home delivery service seems to have launched successfully the reality is that Ocado will not have an easy time signing up new licensing partnerships. But who cares because right now the wind is in the sails of the company and perceptions are certainly in its favour. The City naysayers are currently pretty quiet.

The company’s valuation might now preclude the likes of Amazon from considering acquiring the business – which would have led to a nice clean pay-day for the Ocado founders- but its unlikely this will be of much concern when the share price rise has upped the value of their stakes in the business to new heights. CEO Tim Steiner has nearly 5% worth £150 million while Jason Gissing with around 2.9% has £87 million of value in the company.

Wealth warning – share prices can go down as well as up.