LONDON (dpa-AFX) - Marks and Spencer Group Plc (MAKSY.PK, MAKSF.PK, MKS.L) announced the creation of a new 50/50 Joint Venture with Ocado Group Plc (OCDO.L) that will transform online grocery shopping for UK consumers. As per the Joint Venture, M&S is acquiring a 50% share of Ocado's UK retail business, which will be supported by Ocado Smart Platform or 'OSP', for a total consideration of up to 750 million pounds, including a deferred consideration of up to 187.5 million pounds, plus interest.
Marks and Spencer noted that the Joint Venture will trade as Ocado.com but benefit from access to M&S's brand, products and customer database from September 2020 at the latest, following the termination of the current Waitrose sourcing agreement and migration of Joint Venture sourcing to M&S.
Significant potential synergies for M&S Food estimated of at least 70 million pounds per annum to be achieved by the third year following completion.
M&S is paying Ocado up to 750 million pounds for its 50% stake in the JV; 562.5 million pounds, on completion and up to 187.5 million pounds, plus interest, payable after five years, conditional on reaching agreed financial and operational targets.
Marks and Spencer noted that the board of the Joint Venture will be shared 50/50 between M&S and Ocado, with each having the right to appoint two directors. For five years from completion, Ocado shall have the right to appoint the Chief Executive Officer, and M&S one of the JV's directors as Chair. The management team of the Joint Venture, other than the Chief Executive Officer, will be appointed by the JV Board, with Lawrence Hene, currently Ocado's Commercial Director, being appointed as interim MD of the JV to lead its establishment.
The current expectation is that the Transaction is expected to close in third-quarter of 2019
For the 52 weeks ended 2 December 2018 the Joint Venture would have generated revenue of 1.468 billion pounds and EBITDA of 34.2 million pounds, taking into account the newly created OSP contract and other fees and services.
Marks and Spencer noted that the transaction will be primarily equity financed. The Board intends to conduct a Rights Issue to raise up to £600m which will be launched in due course following the publication of our audited 2019 financial statements. The Rights Issue has been fully underwritten on a standby basis by Morgan Stanley.
Marks and Spencer said, ' the Board is resetting our dividend per share by 40% to a sustainable level, which we aim to grow in line with earnings over time. This will begin with a reduction in the final dividend for 2018/19 to 7.1 pence. The 2018/19 final dividend and prior dividends will be restated in future accounts to reflect the bonus factor adjustment resulting from the rights issue in due course.'
'On 10 January 2019, M&S announced its trading statement outlining its trading performance for the 13 weeks to 29 December 2018. Since that date, the Group's performance continues to be in line with the Board's expectations. We will report our Full Year Results on 22 May 2019,' Marks and Spencer said.
From the Switchover Date, the new sourcing and branding contract with M&S will provide the JV with M&S product at cost, exclusive rights to sell M&S's full range of food and beverage products online and non-exclusive rights to sell M&S's general merchandise products online. The JV will also continue to source its wide range of third-party branded goods. Under the new sourcing contract, from the Switchover Date the JV will no longer incur sourcing fees payable to Waitrose, which were over 15 million pounds in 2018, Ocado Group said.
The proceeds will enable Ocado Group to fund fully the development of all Customer Fulfilment Centres currently committed with Ocado Solutions' partners.
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