“On February 23, 2009, Mr. Moritz called Mr. Blackburn and Mr. Krawiec to discuss a potential business combination of Amazon and Zappos and Mr. Moritz’s history of working with the Zappos management team.”

As I wrote on my site here, it’s not exactly a smoking gun. But it’s not nothing either.

Also to @James, the S-4 makes it pretty clear that Amazon reached out to Zappos back in 2005.

I had the same feeling as you about this one. shared my thoughts a couple of days ago.

http://bijansabet.com/post/147548060/did-sequoia-force-zappos-to-sell

Now, for Zappos to compete successfully, they need to invest significant capital in IT and infrastructure, capital and dollars it didn’t have at the time. Zappos could have raised more money though debt but that would most likely occur at less than desirable terms in the current environment. It could tap public markets, but again, probably not good timing. It could go into harvest mode and invest modest amounts until the economy stabilizes and then tap the public markets. But doing so would put it years away from exploiting the fruits of the technology investment. So, selling out to proven industry leader like Amazon gives them much needed access to technology expertise at precisely the right time to exploit it; and it offers Amazon much needed access to brands and assortment as well as a foothold (pardon the pun) in the apparel space where it has struggled. If both sides are smart, they will continue to operate independently.

Regarding valuation, Tony was always resolute in stating gross sales. Net sales of 620m implies a 38% return rate, an extraordinary number. To get that number reduced, the company needs to improve its technology to better match buyers to products or improve average order value / units per transactions. Both are areas where Amazon’s technology can make a major difference. Zappos generated a $40m operating income last year, implying a 20x valuation at 860m. The acquisition seems very fairly valued.