zappos-amazonAmazon.com said it has agreed to acquire shoe retailer Zappos.com in a stock deal valued at $807 million.

Zappos, which was founded in San Francisco during the tail end of the last Internet boom, became famous for its radically friendly customer service. You could order shoes, have them sent to you by mail, try them on, and simply return them if you didn’t like them.

Founder Tony Hsieh (below) became known for transparency too. He’d send out an annual letter, saying how much revenue the company had made, and boldly projecting the following year’s revenues — usually targeted at about double the existing year’s. Hsieh consistently hit the targets, and soon he drew eager investors such as Sequoia Capital, which pumped in money on the assumption the company would eventually go public or get sold at a high price (see our post from 2005, where I warned “Amazon, watch out!.“) Several years ago, he moved the company from San Francisco, to Las Vegas. Hsieh, a quiet but intense man, was nominated last year for the Best Startup CEO at last year’s Crunchies, which we co-host.

tonyhsiehzapposAnd high price it is. Amazon said in a statement that under terms of the deal, it will buy all outstanding shares, warrants and options of Zappos in exchange for roughly 10 million Amazon shares, with their value based on the average closing prices in June and July (and thus the $807M is the 45-day estimate of its share price. Based on the closing price today alone, the deal would have been $880 million.). In addition, Amazon said it “will provide Zappos employees with $40 million in cash and restricted stock units.” Amazon said it expects the Zappos acquisition to close in the fall.

Breaking: From blog of Zappos founder Tony Hsieh…..

Date: Wed, 22 Jul 2009
From: Tony Hsieh (CEO – Zappos.com)
To: All Zappos Employees
Subject: Zappos and Amazon

Please set aside 20 minutes to carefully read this entire email. (My apologies for the occasional use of formal-sounding language, as parts of it are written in a particular way for legal reasons.)

Today is a big day in Zappos history.

This morning, our board approved and we signed what’s known as a “definitive agreement”, in which all of the existing shareholders and investors of Zappos (there are over 100) will be exchanging their Zappos stock for Amazon stock. Once the exchange is done, Amazon will become the only shareholder of Zappos stock.

Over the next few days, you will probably read headlines that say “Amazon acquires Zappos” or “Zappos sells to Amazon”. While those headlines are technically correct, they don’t really properly convey the spirit of the transaction. (I personally would prefer the headline “Zappos and Amazon sitting in a tree…”)

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. 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.

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 towards our long term vision. For Zappos, our vision remains the same: delivering happiness to customers, employees, and vendors. We just want to get there faster.

We are excited about doing this for 3 main reasons:

1) We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster……More here.