UK supermarket Morrison expands Ocado home delivery deal

(Adds analyst reaction, shares)

LONDON, Aug 9 (Reuters) - British supermarket WM Morrison agreed improved terms with its online partner Ocado which will allow it to extend home delivery across the country using its own stores to provide some products.

Morrisons said a profit share agreement would be cancelled and its research and development fee to Ocado would be reduced, as well as removing a restriction on supplying goods directly from its supermarkets.

The two companies started to work together in 2013, enabling Morrisons to launch an online business, albeit years later than its three bigger rivals Tesco (Xetra: 852647 - news) , Sainsbury (Amsterdam: SJ6.AS - news) 's and Asda.

The supermarket announced a separate wholesale deal to supply Amazon with fresh and frozen food in Britain earlier this year.

The agreement boosted shares in both Morrisons and Ocado, with Morrisons rising to a nine-week high and Ocado to 12-week highs. Morrisons was trading up 2.1 percent at 192.1 pence at 0930 GMT, while Ocado was up 2 percent at 281.7 pence.

Ocado said the deal should boost earnings, although the impact on profit would be limited in the current and next financial year.

Analyst Clive Black at Shore Capital said the long-running talks had concluded to mutual benefit.

"It provides a more sustainable economic prospect for Morrisons to build out its online capability in Britain whilst providing a lifeline to Ocado in its grocery fulfilment activity in its home market," he said.

Under the terms of the deal, Morrisons will take space in Ocado's fourth customer fulfilment centre, being built in Erith, south of London. It will also contribute to building costs.

Morrisons will use Ocado's technology to help meet orders from its own stores, extending its online business across the country, apart from Northern Ireland where it does not have shops.

The supermarket said the extension meant the break-even point for Morrisons.com will be slightly later than originally planned. It had been targeting break-even for its online operation by the end of its 2017-18 financial year. (Reporting by Paul Sandle; editing by Keith Weir)