Amazon.com in a regulatory filing today pulled back the curtain on its deal to acquire online shoe retailer Zappos -- giving a timeline of contacts between the two companies and showing who stands to benefit from the massive transaction. Turns out the two companies explored a possible deal as far back as 2005, with a meeting in Las Vegas involving Amazon CEO Jeff Bezos, Zappos CEO Tony Hsieh, Sequoia Capital partner Michael Moritz, and others.
That meeting was followed by a long pause, but things picked up again in March 2008, when Peter Krawiec, Amazon’s Vice President of Corporate Development, was introduced to Zappos chief financial officer Alfred Lin at a dinner in Scottsdale, Ariz. A series of meetings and phone conversations followed. After a flurry of proposals, counterproposals and presentations, the deal closed July 22.
The timeline indicates Amazon initially favored an all-cash transaction, while Zappos pushed for a stock deal. In a May 4 phone call, "Mr. Krawiec proposed possible terms of an all-cash acquisition of Zappos by Amazon, and Mr. Lin inquired whether Amazon would consider an all-stock transaction."
Zappos was banking on the future strength of Amazon shares. Was it the right strategy? Zappos could have gone for a cash deal or some combination of cash and stock, or stayed independent and waited for the IPO market to improve. According to Amazon's regulatory filing, Morgan Stanley conducted an initial public offering analysis and calculated the "present value of Zappos’ future equity value to Zappos’ existing shareholders in the range of $650 million to $905 million."
In the end, Amazon went with a mostly stock deal, which is currently valued at around $880 million, though that value could change between now and the fall, when the agreement is expected to close.
As far as ownership of Zappos, Amazon's filing shows that Sequoia Capital owns 26.8 percent of preferred stock in the company, while Venture Frogs, the investment firm founded by Tony Hsieh and Alfred Lin, owns 27.4 percent of preferred stock. Hsieh personally owns 61.4 percent of Zappos preferred stock (counting the Venture Frogs stake). The Wall Street Journal's Venture Capital Dispatch estimates Sequoia's preferred stock was worth $144 million at the time of the deal, adding:
The upshot of the ownership numbers? Zappos execs Lin and Hsieh kept strong control of the company when they took venture funding from Sequoia. Hsieh invested in the company in 1999 and became CEO in 2000. Lin came on in 2005. Thus there would be little room for Sequoia to force a sale to Amazon, as has been suggested by some media reports.
Hsieh himself said as much in a recent statement, writing that "Nobody was forced to sell to Amazon."
The Journal notes another interesting factoid from the filing: Zappos' 2008 net revenue last year was actually $635 million. Earlier reports indicated the company did $1 billion in sales last year.
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