Amazon.com
Alternative Exit Strategies advantages and disadvantages of each)
Amazon’s investors could have used any of the below exit strategies.
- Buyout
Amazon could have been bought-out by someone who comes in and takes over the business. This happens when the startup company is dying. Amazon was in good position.
This exit strategy is ruled out.
- Liquidation of assets
Selling the assets and shutting down the business, this type of exit is also used when the business is dying. So this strategy is also ruled out.
- Mergers and Acquisitions
Two company get together to establish the value of the new company and combine the two companies (hostile acquisition, normal acquisition or merging) to form one bigger company. The company shareholder gets stock in the bigger company which is presumably worth more than the stock held in each independent company.
Disadvantage: Cash is not available to use soon after the merger.
Control of the business is shared between the two companies in case of Merger.
Hostile acquisition always ends up in higher valuation of the acquired company.
The founder of Amazon, Benzos and Covey never had any intention of merging their company with any big company. When it was opened in 1995 in Bezos’s garage, it was named as “Earth’s biggest bookstore”. The clear intention behind was to make this much bigger than any existing bookseller.
The potential for Amazon to grow was huge and neither Barnes & Nobles nor Borders approached Amazon for either a merger or an acquisition. Both being a big company and they did not have their working capital strategy as Amazon. That was the biggest advantage for Amazon. A merger or acquisition would have created a behemoth in bookstore business.
Barnes and Nobles tried to compete with/break Amazon using a different strategy but that did not work.
Amazon.com is an Ingram Book Group customer.
In early November 1998, Barnes & Noble Inc. (http://www.barnesandnoble.com) announced the forthcoming purchase of Ingram Book Group (http://www.ingrambook.com). Early this month, under heavy fire from independent booksellers and negative signals from the Federal Trade Commission, Barnes & Noble withdrew its bid.
Booksellers rejoiced over the victory—Amazon.com more quietly than others
Recent Rumor
March – 2007 Barnes & Noble Inc. and Borders Group Inc. provided lackluster financial outlooks on Thursday, leading some industry analysts to think that a merger or leveraged buyout could be in the offing
- IPO :
Why IPO?
The Company does not need to go public at the time to raise capital. They had $7 million of cash available. Inventory turns are high and they have a rapid cash conversion cycle – 1 day for receivables, 7 days of inventory and 41 days of payables.
Market Condition: Since august 1995 till March 1997, of all the technologies company which went public, nearly 75% were trading below their offering prices.
A leading company Auto-By-Tel had pulled its offering at the end of March. Other company (OnSale) was also trying to pull their offering off.
IPO was just another step in Amazon’s Business Development Process. It was a strategic choice to focus on the long term opportunity.
Success Story:
Silencing any doubts about its chances on the public market, Amazon.com (AMZN) ended the day $54 million richer as its long-awaited initial public offering soared 30 percent above its opening price.
Even that pre-IPO price had been raised twice before the market opened. Initially, it had been set for a $12-to-$14 range, then got bumped up to $14 to $16 before the company's investment bankers settled on the $18 price
Propelled by demand that pushed opening trading to 29-1/4, the pioneering online bookstore hit a day's high of 30 before settling down to close at 23-1/2. That was more than 30 percent higher than the $18 target price set by underwriters just the night before.
The IPO raised $54 million for Amazon, giving the company a market value of $438 million. The online bookstore put 3 million shares on the block.
Amazon.com went public on May 15, 1997, and the IPO price was $18.00, or $1.50 adjusted for the stocks splits that occurred on June 2, 1998 (2-for-1 split), January 5, 1999 (3-for-1 split), and September 1, 1999 (2-for-1 split).
Current Price : $42.41 as of 04/13/07
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