July 22, 2009, 12:00 AM

Amazon.com decides Zappos.com is the right fit for an acquisition

In a blockbuster move that will net the biggest web retailer the largest player in the online shoes space, Amazon.com has reached a tentative deal to acquire Zappos.com in a total deal valued at $847 million. Amazon expects the deal to close this fall.

In a blockbuster move that will net the world’s biggest web retailer the largest player in the online shoes space, Amazon.com has reached a tentative deal to acquire Zappos.com in a total deal valued at $847 million.

Under the terms of the deal, Amazon will acquire all of the outstanding shares of Zappos.com, No. 27 in the Internet Retailer Top 500 Guide, for approximately 10 million shares of Amazon common stock valued at $807 million. The stock price is based on Amazon`s average closing price in the 45 days that ended July 17, the retailer says. Amazon will also provide Zappos.com employees with $40 million in cash and restricted stock.

The acquisition of Zappos.com is the biggest one yet by Amazon, which in recent years also acquired AbeBooks.com and Audible Inc. “Zappos is a customer-focused company,” says Amazon CEO Jeff Bezos. “We see great opportunities for both companies to learn from each other and create even better experiences for our customers.”

Once the acquisition is closed, which Amazon expects will happen this fall, all Zappos.com existing management, including CEO Tony Hsieh, will remain in place.

Zappos, which grew web sales 20.7% to $1.01 billion in 2008 from $840 million in 2007, agreed to the deal because Amazon has deep enough pockets to help Zappos diversify further into apparel and accessories and to grow its brands, Hsieh says in a blog posting. “There is a huge opportunity to leverage each other`s strengths and move even faster towards our long-term vision,” Hsieh says. “Amazon supports us in continuing to grow our vision as an independent entity, under the Zappos brand and with our unique culture.”

Amazon has a good base in online retailing by virtue of its low prices and huge inventory across multiple merchandising categories, Hsieh says in his blog posting. What Zappos.com brings to the table is an ability to establish lasting customer relationships. “We realized that Amazon`s resources, technology, and operational experience had the potential to greatly accelerate our growth so that we could grow the Zappos brand and culture even faster,” Hsieh says. “On the flip side, through the process Amazon realized that it really was the case that our culture is the platform that enables us to deliver the Zappos experience to our customers.”

While Zappos.com topped $1 billion in web sales last year, the company had been under pressure by Sequoia Capital, one of its biggest investors, to cut costs. In November, Zappos.com laid off about 8% of its workforce of more than 1,000 employees. The new deal with Amazon will help Zappos.com grow under the umbrella of a well-capitalized parent. “They have a lot of experience and expertise in a lot of areas, so we`re very excited about the opportunities to tap into their knowledge, expertise, and resources, especially on the technology side,” Hsieh says. “This is about making the Zappos brand, culture, and business even stronger than it is today.”

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