Amazon.com Agrees to Buy Diapers.com Owner for $500 Million

Amazon.com Inc. agreed to buy Quidsi Inc., the owner of Diapers.com and Soap.com, for $500 million in cash, expanding in baby-care products and gaining merchandise- management expertise.

Amazon will assume about $45 million in debt and similar obligations of closely held Quidsi, the companies said in a statement today. They expect to close the deal in December.

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 to gain share against rival online retailers 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, who has a “sell” rating on Amazon shares. When they see a specialty company dominating a category, “they’ll step in and buy it,” he said.

The purchase removes a competitor for Seattle-based Amazon, which began selling diapers in mid-2006, a year after Diapers.com made its debut. Amazon offered a three-month trial of Amazon Prime free of charge to mothers ordering diapers and other baby products to counter Diapers.com’s free shipping.

Photographer: Emile Wamsteker/Bloomberg

Quidsi Chief Executive Officer Marc Lore. Close

Quidsi Chief Executive Officer Marc Lore.

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Photographer: Emile Wamsteker/Bloomberg

Quidsi Chief Executive Officer Marc Lore.

Buying Spree

Quidsi has said it expects sales to increase 67 percent to $300 million in 2010, compared with the 39 percent revenue growth analysts forecast 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, Chief Executive Officer Marc Lore said this year.

Amazon rose $1.22, or less than 1 percent, to $171.99 at 4 p.m. New York time in Nasdaq Stock Market trading. It has added 28 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.

Quidsi, whose name is Latin for “What if,” was founded by Lore and Vinit Bharara. 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 seeking products that customers need to replenish by coming back to the site, 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.”

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.

Morgan Stanley and Debevoise & Plimpton LLP advised Amazon.com on financial and legal matters, while Fenwick & West LLP and Dorsey & Whitney LLP acted as legal advisers to Quidsi. Quidsi didn’t have a financial adviser.

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

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