Wm. Morrison Supermarkets (LON: MRW) will pay up to £170m to start using the services of Ocado Group PLC (LON: OCDO).
The shares of Ocado (LSE: OCDO) surged 81p, or 41%, to 285p during early London trade this morning after the food delivery service announced a 25-year agreement with Wm Morrison Supermarkets (LSE: MRW).
Ocado, which currently delivers around 131,000 orders a week mostly on behalf of Waitrose, said it would sell a delivery facility in the Midlands, various mechanical equipment as well as technical licences to Morrisons for £170m.
The shares of Morrisons edged 3p, or 1%, higher to 286p after the supermarket confirmed it would spend a further £100m on other website developments. The FTSE 100 member also revealed it had lifted its debt guidance for the year to £2.7bn.
Tim Steiner, Ocado's chief executive, said this morning:
"We see Morrisons' decision to adopt our model to drive its online launch as a further endorsement of our technological and logistical excellence."
Dalton Philipps, the chief executive of Morrisons, added:
"This agreement is a significant strategic step for Morrisons. From a standing start, Morrisons will be competing in the fast growing online channel by the end of this year with a really compelling proposition."
The finer details of the agreement include Morrisons paying Ocado an annual IT fee of 1% of Morrisons.com's revenue, an annual bonus fee set initially at 25% of Morrisons.com operating profit, and an R&D fee of up to £8m a year.
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> Maynard does not own any share mentioned in this article.