Is the world's largest media company considering acquiring the world's biggest Internet retailer?
The possibility of AOL Time Warner Inc. swallowing Amazon.com Inc., however unlikely, was prompted Tuesday by the financial documents detailing AOL's $100-million investment in Amazon.
Raising eyebrows was the language that says AOL can submit "a confidential inquiry or proposal" to Amazon executives about an "extraordinary transaction," including an acquisition or tender offer.
"In more conventional agreements, Amazon would have the right to slam the door in AOL's face the moment AOL wanted to talk about extending the relationship," said a mergers and acquisitions lawyer who spoke on condition of anonymity. "This language removes that barrier."
AOL's investment, which was accompanied by a separate deal in which AOL will purchase Amazon technology to enhance its own online shopping services, mystified analysts when it was announced Monday. The general consensus was that AOL could have found better places to invest its funds than a heavily indebted retailer.
With the discovery of the takeover loophole, first reported by Bloomberg News, things became a little clearer. Amazon, whose supply of cash has been the subject of debate for a year now, got a helpful cushion--in return for essentially giving AOL first dibs on its millions of devoted customers.
A spokeswoman for AOL declined to comment. A spokeswoman for Amazon would say only that "the terms of the agreement stand on their own."
Peter Malloy, an outside counsel for AOL at the New York firm of Simpson Thacher & Bartlett, told Bloomberg that the "confidential inquiry" language isn't that unusual. "We have requested" a similar provision "and received it" in other agreements, he said.
Amazon's lawyer, Bruce Meyer of the Los Angeles firm of Gibson, Dunn & Crutcher, did not return a call for comment.
Amazon has more than $2 billion in longterm debt, which even a colossus like AOL might be leery of taking on. The agreement merely opens the door to discussing a deal. It doesn't mean that one will ever happen.
The Amazon faithful have more immediate things to worry about. In the wake of the Seattle company's Monday earnings report, which said growth had slowed dramatically, Amazon shares fell $3.97 to $12.06 on Nasdaq. Three brokers downgraded the stock, which traded at more than five times the typical volume.
