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Amazon.com Acquires Zappos

The e-tailing giant exchanges $807 million in stock as part of the deal.

Amazon.com announced Wednesday it will acquire Zappos.com for $979 million in Amazon stock.

Under the terms of the agreement, Zappos shareholders will exchange their stock for roughly 10 million shares of Amazon stock, worth about $979 million, based on market closing Thursday. That price includes $40 million in cash and restricted stock units Amazon will also give Zappos employees. The acquisition is expected to close during fall 2009.

“We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster,” Zappos CEO Tony Hsieh, wrote in a letter to the firm’s employees posted on his blog, adding that Amazon had reached out “several months ago.”

As reported by Footwear News in May, Zappos recently launched a major expansion project, forging a business in clothing, housewares, jewelry and accessories.

Hsieh went on to say that Amazon supported Zappos’ growth as an independent entity and that the footwear e-tailer wanted to “align ourselves with a shareholder and partner that thinks really long term (like we do at Zappos), as well as do what’s in the best interest of our existing shareholders and investors.”

Hsieh also said in the post that the Zappos management team will remain intact, and that Zappos will operate independently at its headquarters in Henderson, Nev.

Amazon debuted a shoe-specific site, Endless.com, at the beginning of 2007. It was not immediately clear whether Endless.com would continue to operate as an independent site.

Most footwear players were surprised by the news, announced late Wednesday — but the immediate reaction was generally positive.

“It's a marriage made in heaven. ... There's so much synergy and so much learning that can be shared between the two organizations,” said Marshal Cohen, chief industry analyst at Port Washington, N.Y.-based NPD Group. “Both have incredible potential for a wider range of product offering and growth."

Matt Rubel, CEO of Collective Brands Inc., said, “It’s a powerful combination of a great concept onto a platform which represents the future of retailing.”

Others they hoped Zappos’ unique business strategy would have a positive impact at Amazon.

“We do business with both of them,” said Terry Chen, president of Yellow Box. “We can see that Zappos is operating much better than Amazon, at least in the shoe business. ... I think Amazon wants to be No. 1.”

For more reaction to the Zappos/Amazon marriage, see Monday’s Footwear News.