Are Amazon’s ‘warrant’ partnering deals monopolistic?
A recent look at Amazon.com’s partnering practices is making some say that the retail and technology juggernaut is asking too much of its suppliers and putting them in precarious positions.
Amazon has in at least a dozen cases established the right to purchase a partner company’s stock in the future at a price far below market value, according to The Wall Street Journal. The deals, called “warrants,” have been a part of Amazon’s contractual toolbelt for the past decade. It has established similar deals with 75 privately-held companies over that time span. The deals have made Amazon the top shareholder in some of those businesses.
The specifics of a contract with grocery distributor SpartanNash are detailed in a Bloomberg opinion article by finance writer Matt Levine. Amazon amended its grocery distribution contract with SpartanNash, which had been in place since 2016, to include warrants to purchase 15 percent of the wholesaler’s stock at a price potentially lower than market value. The new deal also included a requirement for notification in the case of SpartanNash receiving any takeover offers and a 10-day window for Amazon to make a counterbid. SpartanNash experienced a significant bump in its market value in the aftermath of the deal, despite initial hesitance from higher-ups over the terms.
In Mr. Levine’s assessment, it makes sense for Amazon to use such contracts to drive value and attention to partner businesses and then profit from that value, with partners standing to gain both business and visibility. He does note, however, that Amazon’s behavior is viewed as “grasping and excessive and monopolistic.”
Amazon has not restricted its warrant model to back-of-house partnerships — one of its biggest retail partnerships has such a stipulation in place.
In mid-2019, The Business of Fashion reported that Amazon’s investment arm received a warrant from Kohl’s, allowing the e-tail giant to purchase as many as 1.75 million shares of Kohl’s stock, a multi-year warrant that began vesting in January, 2020. This development was contemporaneous with the agreement between the two companies by which Kohl’s accepts Amazon returns at all of its locations.
- Amazon Demands One More Thing From Some Vendors: A Piece of Their Company – The Wall Street Journal
- Amazon Got Some Warrants – Bloomberg
- Kohl’s Shares Surge on Expansion of Amazon Return Partnership – Business of Fashion
DISCUSSION QUESTIONS: What do you think of Amazon’s practice of negotiating warrants in supplier contracts? Are other retailers engaging in similar practice and, if not, should they?