Amazon.com Said Near Agreement to Buy Diapers.com Parent for $540 Million

Amazon.com Inc. is near an agreement to buy Quidsi Inc., the owner of Diapers.com and Soap.com, for $540 million, two people with knowledge of the matter said.

An announcement may come as soon as today, said one of the people, who declined to be identified because the deal isn’t yet public.

Quidsi, which expects to ship 500 million diapers this year, will help Amazon cater to new parents and gain expertise in warehouse management and low-cost shipping. Amazon Chief Executive Officer Jeff Bezos, 46, bought Zappos.com Inc. last year for $1.2 billion to expand sales of shoes and clothing and gain share against other e-commerce providers such as EBay Inc.

“It’s a business Amazon was in, but one they weren’t a leader in,” said Colin Gillis, an analyst at BGC Partners LP in New York. He has a “sell” rating on Amazon shares. When they see a specialty company dominating a category, “they’ll step in and buy it.”

The purchase also removes a competitor for Seattle-based Amazon, which began selling diapers in mid-2006, a year after Diapers.com debuted. Amazon began offering a free three-month trial of Amazon Prime to mothers ordering diapers and other baby items to counter Diapers.com’s free shipping.

Buying Spree

Quidsi expects sales to increase 67 percent to $300 million this year, compared with the 39 percent revenue growth analysts predict for Amazon. The U.S. e-commerce market will grow 11 percent to $173 billion this year, according to Forrester Research. Quidsi’s revenue may rise to $1.3 billion in 2012, Quidsi Chief Executive Officer Marc Lore said earlier this year.

Amazon rose $1.84, or about 1 percent, to $170.77 in Nasdaq Stock Market trading on Nov. 5. It has risen 27 percent this year.

Amazon, which had $5.9 billion in cash and short-term securities at the end of September, is on an acquisition spree. In June, it bought Woot.com, a site that offers a daily discounted item. It also agreed last month to purchase BuyVIP, a fashion site, for an undisclosed price to broaden its geographical reach into Spain, Italy and Germany.

Drew Herdener, a spokesman for Amazon, and Lindsey Scott, a spokeswoman for Quidsi, couldn’t be reached for comment.

Quidsi was founded by Lore and Vinit Bharara, and its name is Latin for “What if?” Backers of the Jersey City, New Jersey-based company include Accel Partners, Bessemer Venture Partners, BEV Capital, MentorTech Ventures and New Enterprise Associates.

Keep Coming Back

The company profits from diaper-buying customers who also purchase higher-margin products such as brand-name baby shampoo, wipes and formula.

Amazon is looking for products that customers need to keep coming back for that aren’t just one-time transactions, said Josh Goldman, a partner at Norwest Venture Partners in Palo Alto, California. He oversees the venture capital firm’s investments in e-commerce companies.

“When you can get into a replenishment model, it’s very powerful,” Goldman said. “Amazon hasn’t done much of that on their own. The Diapers.com guys have done a really good job of getting you to come back for replenishment items.”

On Nov. 1, Quidsi opened a third site, BeautyBar.com, which sells makeup and fragrances. The company plans to open another one for toys next year, CEO Lore has said.

Lore said in an interview earlier this year there’s room for one big winner in e-commerce, given the costs required to build warehouses and shipping systems that deliver products quickly. Quidsi’s sites offer free overnight shipping for about 70 percent of the U.S. on orders of more than $25.

Quidsi also received a purchase offer from Wal-Mart Stores Inc., according to Fortune, which reported the Amazon deal on Nov. 6.

To contact the reporters on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net; Serena Saitto in New York at ssaitto@bloomberg.net.

To contact the editors responsible for this story: Tom Giles at tgiles@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.