14 DAY TRIAL // Amazon announced it would buy online shoe and apparel retailer Zappos for upwards of $900 million in a stock swap deal last week and new details have now surfaced after the regulatory SEC filing yesterday. The papers show how the negotiations went as well as more financial details about the deal and the companies. One of the things revealed is the fact that top level executives have been meeting since as far back as 2005, indicating that Amazon CEO Jeff Bezos has been interested in the company for a while now.
The fist meeting between the two parties dates August 2005 when Bezos met with Zappos CEO Tony Hsieh and others to talk about a potential partnership. The negotiations continued but haven't really picked up until December last year. Since then representatives of the two companies met 25 times until the Amazon board approved the deal on July 17. After the talks got more serious in spring, Zappos hired consulting firm Morgan Stanley to help with the deal. As the negotiations continued Zappos was pushing for a stock exchange based on the expected rise in Amazon shares price while the online retailer was hoping to get an all-cash deal. The two companies finally reached an agreement on July 22.
Part of the Morgan Stanley analysis was estimating Zappos' value in light of a possible public offering. The report showed that the company would be worth around $650 - $905 million in a 2011 IPO. Also in the SEC filing are the financial results of the shoe retailer showing $635 million in revenue last year but only a $10.7 million net income. The previous year the company only made $1.8 million on a $527 million revenue.
As far as how the investors in Zappos did, Sequoia Capital, which held about 26.8 percent of the shares from several funds, made about $144 million on the deal while, apparently, only investing $35 million. CEO Tony Hsieh and CFO Alfred Lin also got a good deal with the former owning 29.4 percent of preferred shares while the latter owned 2.7 percent. However, the two also funded the corporation through the Venture Frogs company they own, which controlled a further 39.9 percent of the shares.