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Amazon to acquire Zappos.com

In a move that will give Amazon.com a greater command of the apparel and footwear e-commerce vertical, the Seattle-based e-commerce firm has agreed to acquire e-commerce site Zappos.com in a stock exchange transaction.

Under the terms of the agreement, Amazon will acquire all of the outstanding shares and assume all outstanding options and warrants of Zappos in exchange for approximately 10 million shares of Amazon common stock, equal to approximately $807 million based on the average closing price for the 45 trading days ending July 17, 2009.

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

In addition, Amazon will provide Zappos employees with $40 million in cash and restricted stock units. Subject to various closing conditions, the acquisition is expected to close during the Fall of 2009.

“We think that now is the right time to join forces with Amazon because there is a huge opportunity to leverage each others’ strengths and move even faster towards our long term vision,” said Tony Hsieh, CEO of Zappos.com, in an e-mail sent to employees. “For Zappos, our vision remains the same: delivering happiness to customers, employees, and vendors. We just want to get there faster.”

Following the acquisition, the Zappos management team will remain intact and Zappos will operate independently keeping its headquarters in Las Vegas, NV. In the e-mail, Hsieh said that the brand’s philosophy, which is centered around a very strong customer service approach, will remain intact.

“We plan to continue to run Zappos the way we have always run Zappos — continuing to do what we believe is best for our brand, our culture, and our business,” he said. “From a practical point of view, it will be as if we are switching out our current shareholders and board of directors for a new one, even though the technical legal structure may be different.”

This acquisition brings Amazon into a more strategic position in the Apparel and Accessories category. Amazon already has its own online footwear property, Endless.com, but the Zappos acquisition extends its command in this vertical. According to a blog by Hitwise director of research Heather Dougherty, last week Zappos.com ranked third among online retailers in the apparel and accessories category, coming in behind Victoria’s Secret and Old Navy.

The two companies have a crossover in clientele. According to the same Hitwise blog, last week, Zappos.com was the top visited apparel and accessories Web site following a visit to Amazon. “There is a lot of opportunity in this market segment,” said Craig Berman, a spokesperson at Amazon.com.

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