Amazon Buys Zappos in Cash-and-Stock Deal

Shoe-Focused Retailer, With Account in Review, Will Operate as a Separate Brand

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NEW YORK ( -- In true Zappos fashion, CEO Tony Hsieh alerted the masses that his company had been purchased by Amazon via a tweet and his blog.

CEO Tony Hsieh said he and other key executives have no plans to leave the company.
CEO Tony Hsieh said he and other key executives have no plans to leave the company. Credit: Zappos
The notification of his more than 1 million followers pushed both Zappos and Amazon onto Twitter's trending-topics list late today, as the online world buzzed about the acquisition. Zappos, known for its social-media savvy, will be acquired by Amazon, which has proved to be a recession darling, for $880 million in cash and stock. Amazon valued the deal at $807 million, or about 10 million shares of Amazon common stock based on the average closing price for the 45 trading days ended July 17, in addition to $40 million in cash and restricted stock. As of the market close, 10 million shares of Amazon stock would be valued at closer to $880 million.

"We think that now is the right time to join forces with Amazon, because there is a huge opportunity to leverage each other's strengths and move even faster toward our long-term vision," Mr. Hsieh said in an e-mail to employees. "For Zappos, our vision remains the same: delivering happiness to customers, employees and vendors. We just want to get there faster."

The 10-year-old company with footwear roots will be operated as a wholly owned subsidiary of Amazon and will remain at its Las Vegas headquarters. Mr. Hsieh said he and other key executives have no plans to leave the company.

Zappos will operate as a separate brand, Mr. Hsieh stressed in his note to employees. The deal isn't expected to close for several months.

That presents some questions about Zappos' creative-agency review, which got under way this summer. The retailer initially invited only a select number of shops to participate but later opened up the process. The pitch has now garnered interest from more than 100 agencies. A creative from one of those agencies, Ignited, criticized Zappos for what he called its inadequate review of its pitch last week.

Executives at Zappos did not immediately respond to questions regarding the status of that review. Zappos works with Ad Store, New York, and Gotham Direct. Amazon's agency of record is Southfield, Mich.-based Doner. The retailer spent $12 million in measured media in 2008.

Zappos, which was a contender for Ad Age's Marketer of the Year honors, has seen rapid growth in its 10 years. In 2007, it recorded $840 million in sales and forecast $1 billion in sales for 2008. It grabbed 14% of the vote for Marketer of the Year, coming in third, behind Barack Obama and Apple.

It hasn't been immune to the recession, however. In November, the retailer cut 8% of its staff and began to explore the shuttering of bricks-and-mortar outlets in Nevada and Kentucky. Its investor, Sequoia Capital, mandated cuts across its portfolio, which surely made the Zappos team more receptive to Amazon's overtures. According to Mr. Hsieh, Amazon reached out to Zappos several months ago.

Zappos has earned consistent praise for its use of social media and its customer-service-centric approach. It's also attracted plenty of attention for its employee relations and unique culture, which include the publication of a "culture book" the size of a phone book.

"Zappos is a customer-focused company," said Jeff Bezos, founder-CEO of Amazon, in a statement. "We see great opportunities for both companies to learn from each other and create even better experiences for our customers."

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