Amazon Acquires Kiva Systems in Second-Biggest Takeover

Amazon.com Inc. (AMZN) is making its biggest acquisition since the 2009 purchase of Zappos.com, agreeing to pay $775 million for Kiva Systems Inc., a maker of robots that move items around warehouses.

The all-cash deal for closely held Kiva will close in the second quarter, Seattle-based Amazon said today in a statement. Kiva’s orange robots, which can slide under shelves and bins of products, are used by Quidsi Inc. -- the company behind Soap.com and Diapers.com that Amazon acquired for about $545 million last year.

The takeover of Kiva by the world’s largest online retailer will add to investments Chief Executive Officer Jeff Bezos has made in the company’s order-fulfillment centers, as Amazon seeks to get a bigger variety of products to consumers faster. Amazon spent $4.6 billion last year on warehouses -- the company’s largest operating expense at 9.5 percent of sales, according to its annual report.

“It’s an internal infrastructure play, and it comes at a time when their headcount has been growing faster than revenue,” Colin Gillis, an analyst at BGC Partners LP in New York, said in an interview. “One of the knocks on Amazon is that their fulfillment is an expensive, manual process. They’re not getting the benefits of scale. So they’re taking some steps towards it.”

Employees, Revenue Rise

Amazon had 56,200 full-time and part-time employees in 2011, a 67 percent increase from the year before, while revenue rose 41 percent, data compiled by Bloomberg show.

The company’s stock rose 47 cents, or less than 1 percent, to $185.52 at the close in New York. The shares have gained 7.2 percent in this year.

The online retailer is under pressure to increase its shipping capacity as more third-party retailers use its fulfillment services, taking advantage of the company’s warehouses and lower shipping rates. Units sold by outside vendors increased 65 percent in the fourth quarter from a year earlier, and made up 36 percent of unit sales.

Kiva, whose headquarters will remain in North Reading, Massachusetts, will help Amazon make shipping more efficient, the company said.

“Amazon has long used automation in its fulfillment centers, and Kiva’s technology is another way to improve productivity by bringing the products directly to employees to pick, pack and stow,” Dave Clark, vice president of global customer fulfillment at Amazon, said in the statement.

Margin Pressure

Amazon’s operating margin is predicted to narrow to 1.6 percent in 2012 after falling 2.3 percentage points last year, putting stress on the company to bolster profits. In January, Chief Financial Officer Thomas Szkutak said operating results this quarter will range from a loss of $200 million to a gain of $100 million.

Amazon spent about $1.2 billion to buy online shoe retailer Zappos.com in 2009, its biggest acquisition. The company often opts for licensing agreements, like the ones it made in the past two months with Viacom Inc. and Discovery Communications Inc. (DISCA) to distribute streaming online video content.

The company had made four takeovers in the past year before today, data compiled by Bloomberg show. It also acquired a 31 percent stake in LivingSocial.com, the No. 2 daily-deal site behind Groupon Inc., according to a regulatory filing.

“It’s an interesting move that they’re not just licensing it,” Gillis said. “It potentially removes the advantage for any competitor.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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