Marketing Home Analysts Essay

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Case 1 2009: Clothing, Customer Service, and Company Culture Frances X. Frei Robin J. Ely Laura Winig on July 11,2009, privately held online retailer of shoes, clothing, handbags, and accessories-learned that, Inc.-a $19 billion multinitional online retailer of books, electronics, toys, and other merchandise-had won its board of directors'approval to offer to merge the two companies. (See Exhibits 1,2, 3, and 4 for selected financials for both companies.) Amazon had been courting Zappos since 2005, hoping a merger would enable Amazon to expand and strengthen its market share in soft-line retail categories such as shoes and apparel---categories the company considered strategicaliy important to its business groMh.r while Amazon's interest intngued Zappos'cEo, Tony Hsieh, and chairman, COO, and CFO, Alfred Lin, the two senior executives had not felt the time was dght until now. Amazon's offer-l0 million shares of stock (valued at $807 million),o $40 million in cash and restricted stock units for Zappos'employees, and a promise that Zappos could operate as an independent subsidiary-was on the table. Zappos'financial adviser, Morgan Stanley, estimated the future equity value of an initial public offering to be between $650 million and $905 million; this estimate skewed the Amazon offer-at least in financial terms-toward the high end of Zappos'estimated market value. (See Exhibit 5 for market values ol comparable oniine and footwear retailers.) Hsieh and Lin knew that much of Zappos' growth, and hence its value, had been due to the company's strong culture and obsessive emphasis on customer service. In 2009, they were focusing on their three cs-clothing, custolner service, and company culture-the keys to the company's continued groMh. Hsieh and Lin had only a few days to consider whether to recommend the merger to Zappos' board at

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