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Amazon-Wal-Mart Deal Near?

E-commerce: A British paper reports that a pact is in the works. Companies won't comment, and some analysts are skeptical.

March 06, 2001|From Times Staff and Wire Reports

Shares of soared 26% on Monday after a published report said the online retailer is forming a strategic alliance with Wal-Mart Stores Inc.

Britain's Sunday Times said that under the deal, expected to be announced in six weeks, Amazon would handle Wal-Mart's online strategy, similar to a deal Amazon struck with in August. In return, Amazon would get a physical presence in Wal-Mart stores. The deal would involve revenue-sharing on both sides, the report said.

Neither company would comment on the report.

Henry Blodget, an analyst at Merrill Lynch, said that an Amazon-Wal-Mart alliance would "act as an effective marketing vehicle."

"Wal-Mart shoppers who might not otherwise use or think about Amazon would now encounter it every time they went shopping," Blodget said. "From Wal-Mart's perspective, the deal would allow it to continue to focus on what it knows and does exceptionally well--store-based retailing--while outsourcing its e-commerce strategy to Amazon."

Salomon Smith Barney, in a note to clients, said Wal-Mart has less incentive to make a deal than Toys R Us did last fall and suggested that chances of an alliance are slim.

"We believe that discussions occur on an ongoing basis between the companies, but [see] a 25% chance that a significant agreement will occur in the near term," wrote Salomon analyst Tim Albright. "We believe the companies have discussed cross-promotion, shared purchasing and shared logistics surrounding Wal-Mart's Internet efforts."

Another analyst dismissed the report entirely.

"I think Wal-Mart is very satisfied with their efforts [on the Web]. I don't see them going in and rescuing," said Bob Buchanan, an analyst at A.G. Edwards & Sons.

Such an alliance is ripe for speculation, given Wal-Mart's fits and starts online and Amazon's financial problems, analysts said.

The Arkansas-based retail giant has redesigned its Web site twice in the last year, and just last week cut 10% of its 250-employee online work force to conserve cash.

Amazon has had difficulty expanding its business efficiently, but it is still considered a customer service leader.

Last month, Amazon announced it would lay off 1,300 workers, or 15% of its work force, to carry out management's promise to turn a profit by this year's fourth quarter.

Amazon's stock rose $2.63 to $12.63 on Nasdaq. Wal-Mart fell 55 cents to $48.37 on the New York Stock Exchange.

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