Ocado plc (OCDDY) shares surged the most in nearly a year Monday on speculation that it could become an acquisition target for Amazon Inc. (AMZN) after the online giant launched a $13.7 billion takeover of upmarket grocer Whole Foods Market Inc. (WFM) last week.
Ocado shares gain around 6.7% in the opening 45 minutes of trading, the biggest jump since August, to change hands at the top of the Stoxx Europe 600 index at 294.4 pence each and valuing the U.K.-based online grocery store at around £1.9 billion ($2.43 billion)
Amazon's swoop for Whole Foods hit shares in U.S. and U.K.-based grocery stores amid concern that already-depressed margins, largely as a result of global food price deflation, will continue to pressure margins. However, it has also opened the door to more possible M&A and increased speculation that Amazon may do similar deals in other areas.
Ocado owns a proprietary robotic warehouse technology and software that it is trying to sell to foreign retailers as part of its growth strategy. It's also partnered with William Morrison Supermarkets plc (MRWSY) and privately held Waitrose plc in the U.K. and announced its first international tie-up earlier this month.
Last week it raised £200 million from a bond sale and said it would put £94.5 million towards developing its robots and expanding capacity at its warehouses.
However, it has been facing intense pressure from Amazon's burgeoning food delivery service in the United Kingdom, said it is in continued discussions, which began in February of last year, with multiple international retailers to begin running operations for them in the U.K.
The group, which once held first-mover advantage in the home delivery of groceries in the U.K., has suffered a number of setbacks over the past year as Amazon, which entered the British market through a tie-up with Morrisons, the U.K.'s No. 4 grocery store by market share, applied pressure with two-hour delivery in certain areas.
This led Morrisons to review its contract with Ocado in August, when the supermarket said the deal was too costly and restrictive.
FTSE 250-listed Ocado reported in March that gross retail sales in the 13 weeks to Feb. 28 rose 13.1% from the same period last year to £384.7 million ($466.86 million), the same pace of growth the group recorded in the 2014 to 2015 period.