Amazon.com Inc (NASDAQ: AMZN) uses its size to acquire warrants or rights to purchase the stock of its publicly traded suppliers at steep discounts to market value, the Wall Street Journal reported.
What Happened: Amazon often uses unusual contracts to tie warrants to how much business it gives a supplier.
WSJ notes that Jeff Bezos-led retail giant has struck at least a dozen deals with publicly traded companies. It has forged over 75 such deals with privately held companies in the last ten years.
Amazon’s potential stakes amount to billions of dollars and, in some cases, position Amazon among the top shareholders in those businesses.
While the deals can benefit the suppliers by locking in big contracts, which can also boost their share prices, the executives at several companies felt pressured by Amazon to avoid risking a significant contract.
Some deals also give Amazon board representation and the ability to top any acquisition offers from other companies.
For Amazon, the arrangements give it a piece of the potential upside their vendors can get from doing business with one of the world’s biggest companies.
According to former Amazon executives who worked on the agreements, Amazon throws its weight around to exact lucrative terms in its supplier deals that include warrants, WSJ notes.
Several former Amazon executives who worked on such deals found them unfair, saying the companies weren’t in a position to refuse and that most of the upside went to Amazon.
Last year Amazon added a condition to its long-term contract grocery distributor SpartanNash Co (NASDAQ: SPTN). If Amazon bought $8 billion worth of groceries over seven years, it could get warrants to purchase around 15% of SpartanNash’s stock at a discount to the market. Amazon also wanted to be notified of any takeover offers for SpartanNash and have a 10-day window to offer a counterbid. Amazon could become the company’s second-largest shareholder if it exercised the warrants.
Why It Matters: Amazon’s latest 10-Q valued its warrants at $2.8 billion, over five times the level three years ago. The warrants valuation and the stakes it holds in companies increased tenfold to $8.4 billion in that period.
In 2017, Walmart Inc (NYSE: WMT) obtained warrants in Plug Power Inc (NASDAQ: PLUG) a few months after Amazon struck a commercial deal tied to warrants with the company.
Clean Energy Fuels Corp (NASDAQ: CLNE) struck a deal with Amazon earlier this year to give the larger company a 20% stake over the next decade, making it the second-largest shareholder. Clean Energy must notify Amazon if it receives a takeover offer.
Other companies with warrants deals include Air Transport Services Group Inc (NASDAQ: ATSG), Atlas Air Worldwide Holdings Inc (NASDAQ: AAWW), Cargojet Inc (OTC: CGJTF), StarTek Inc (NYSE: SRT)
Price action: AMZN shares traded lower by 0.06% at $3,448.14 in the after-hours session on the last check Tuesday.
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