The long woo between Amazon and Zappos…

July 28, 2009

Ever since Amazon (AMZN) announced that it was acquiring the privately held Zappos last week for just over $800 million, the internet has been ablaze about whether Zappos was forced to sell by Sequoia Capital, a venture capital firm which is Zappos’ largest outside shareholder. Entrepreneurs, venture capital folks and bloggers of various stripes have all weighed in. As the WSJ reported here, Zappos’ CEO Tony Hsieh even had to go as far as issuing a statement denying the forced sale rumors.

Given all this hullabaloo, I thought it would make sense to take a closer look at this S-4, which Amazon conveniently filed late yesterday. As the background of the merger notes, Amazon executives, including Jeff Bezos, first met with Zappos executives including Hsieh nearly four years ago in Las Vegas. While no deal was struck after that meeting, Zappos clearly continued to remain on Amazon’s radar, at least according to the filing.

Nearly three years later, in March 2008, Amazon’s Peter Krawiec and Zappos’ Chairman and COO Alfred Lin met in Scottsdale and again discussed partnership possibilities. And then in December 2008, there was another meeting in Vegas where they agreed to talk more during the first quarter of 2009, which is when Morgan Stanley (MS) was brought in. Morgan Stanely eventually wound up representing Zappos in the deal, though they also appear to have done some work on this for Amazon too, according to the filing. Of particular interest to those trying to figure out just whether Zappos’ hand was forced may be this sentence in the filing:

On February 23, 2009, Mr. Moritz called Mr. Blackburn and Mr. Krawiec to discuss a potential business combination of Amazon and Zappos and Mr. Moritz’s history of working with the Zappos management team.

Moritz refers to Sequoia Capital partner, Michael Moritz, who sits on Zappos’ board. Is it the smoking gun that entrepreneurs can point to to justify the Zappos was forced to sell? Not exactly. But it’s not nothing, either. There’s also some interesting disclosures about Morgan Stanley’s fairness opinion, which seems to have met some resistance, judging by the filing.

The bottom line is that those who believe Zappos was forced to sell can probably find enough ammunition in yesterday’s filing to justify their view. But as with any filing, the interpretation is often in the eye of the reader, which is why reading these things is much more of an art than a science.

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