Ocado Group PLC (LSE:OCDO) said it may need to sue Marks and Spencer Group PLC (LSE:MKS) over a dispute that is preventing a payment to the online grocery specialist after their Ocado.com joint venture failed to meet performance targets.
Alongside a rare profit reported by the FTSE 100-listed robot warehouse group today, it said that either "formal litigation" or an out-of-court settlement may be needed to get M&S to make the disputed payment.
Under the terms of Ocado Retail joint venture agreed in 2019, a final payment was to be made by M&S to Ocado of £156.3 million plus interest, totalling £190.7 million, depending on performance by the JV for the 2023 financial year.
The outcome would be binary, according to the contract, in that if the target is achieved a full payment would be made but nothing would be owed by M&S if the target was missed.
Ocado acknowledged today that the JV, which operates under the Ocado.com website, "failed to meet the performance measures" for the past financial year that were required for the payment.
However, it said there was "no formal arrangement" for any payment between zero and £190.7 million, but argued that the contract with M&S "expressly provides for the target to be adjusted for certain Ocado Retail management decisions or actions that differ from the assumptions used in the discounted cash flow model which underpinned the sale transaction".
It has employed "specialists" - probably lawyers and accountants - to help it identify and quantify such potential adjustments so it can better argue its case to get paid by M&S.
Ocado has calculated that £28 million would be a "fair value" of the consideration, based on the principles of IFRS 9 accounting rules.,
But it said this is "significantly lower than the amount that Ocado believes it will receive in the future", which it said would need to be "either via a formal litigation process or settlement".
An M&S Spokesman told Proactive: "M&S remains committed to the turnaround strategy for Ocado Retail and our focus is on working with them and Ocado Group to deliver it.
"On the specific issue of the contractual contingency payment, our advice is that the financial performance of Ocado Retail means the criteria for the performance payment was not met."