Ocado shares rise amid Kroger merger talks

Ocado shares have risen over 10% after reports that its largest technology client, Kroger, was in talks with US supermarket operator Albertsons over a potential merger, which could see Ocado expand its presence in the US. 

Following reports from Bloomberg over a potential merger, the company rose to the top of the FTSE 100 after jumping 42.7p, or 10.9%, to 435.8p, the biggest daily rise since May.

US supermarket giant Kroger is Ocado’s biggest warehouse technology client, after Ocado struck a deal with the group to build 20 automated warehouses in the US back in 2018. 

Kroger is the largest supermarket operator in the States, and operates big name brands including Fred Meyer, Ralphs, King Soopers, Harris Teeter as well as its namesake brand. It has nearly 2,800 stores across the US, while Albertsons has around 2,200.

According to Bloomberg, Kroger and Albertsons are now in talks over a potential merger that would create a “US grocery giant”.

People close to the matter told Bloomberg that a cash-and-stock deal valuing Albertsons at around $25bn (£22bn) could soon be reached.

The resulting boost to Ocado’s share prices comes after Ocado shares witnessed a fall of more than 7% last month when analysts at HSBC downgraded the retailer’s rating from ‘hold’ to ‘reduce’.

The lowered rating came after Ocado lowered its FY22 outlook in a trading update on 13 September.

At the time, it said revenue growth in Q4 was not expected to generate full-year growth year-on-year as customers are buying smaller baskets and trading down in response to inflationary pressures. The group now expects to see a small sales decline in FY22 and close to break-even EBITDA as customers are seeking value-for-money items.

Ocado declined to comment.