O Chanos! Ocado Group PLC (LON:OCDO) went berserk as it announced a 25-year partnership with Wm. Morrison Supermarkets plc (LON:MRW) today. OCDO rose as high as 46 percent. Yes! Not a typo—46 percent in trading today, and closed at +34 percent on the London Stock Exchange.
Why are we so psyched about a relatively unknown online grocery retailer, you ask? Simply because the big boys in the U.S. have been betting against the company. Famed shortseller Jim Chanos and Tiger cub John Griffin have bet against the company—each holding 3.61 and 2.19 percent shares short respectively, until the last update.
Ocado, Chanos and Icahn
We have talked about Ocado Group PLC (LON:OCDO) several times, as the company has the highest short interest disclosed to the Financial Services Authority of U.K. Just a couple of days ago, OCDO declined 13 percent when news broke that a deal between Ocado Group PLC (LON:OCDO) and Wm. Morrison Supermarkets plc (LON:MRW) could fall apart, and interestingly Chanos had covered a portion of his short on the previous Friday. So while Chanos may have saved himself from some of the losses, he still holds the highest individual short interest so far.
These huge paper losses for Chanos come at a time when the honorable Carl Icahn said on CNBC that he did not see Chanos entering into Forbes’ richest people lists. These discouraging comments came when Icahn was discussing his bullish view on Dell Inc. (NASDAQ:DELL), where Icahn holds a major stake and where Chanos has said that he is short. Icahn said that he had made money on betting against Chanos many times. Icahn, in his graciousness, said that he respected Chanos but that he was dead wrong on Dell Inc. (NASDAQ:DELL).
Ocado Group PLC (LON:OCDO)’s brand new deal allows it to sell its web-shopping technology to Wm. Morrison Supermarkets plc (LON:MRW) for $257 million. This new deal does not stop Ocado from selling these licenses to other retailers, so the door is open for new partnerships. Goldman Sachs, in their analysis, note that this deal not only includes an upfront payment but also an annual IT payment of 1 percent of Morrisons.com revenue and a management fee of 4 percent of operating costs, so Ocado is getting a constant stream of cash here. The deal will boost revenues of Ocado and will add a mid-teen million pound improvement to their net profit. The effect on EBITDA is expected to be $6-7.5 million higher.
As much as we would have liked to see Icahn proven wrong, Ocado is not helping the case, rising +40 percent in one day is simply no way to make Icahn respect Chanos more.