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Supply Chain News: Amazon has been Pushing Equity Stakes in Vendors for them to Gain or Keep the Business


Wholesaler SpartanNash Keeps Amazon Business - for Warrants Allowing Amazon to Acquire 15% of the Company

June 30, 2021
SCDigest Editorial Staff

For decades In the grocery industry, consumer goods companies have battled over so-called “slotting fees” retailers levy for adding a new product to store shelves, nominally to recouped their own costs – but also padding the bottom line.

Supply Chain Digest Says...


In its latest quarterly earnings report, the company valued its warrants at a whopping $2.8 billion, more than five times the level three years ago.

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Now, Amazon is taking a somewhat similar path but maybe to even a great degree, demanding prospective  current anvendors provide the rights for Amazon to gain an equity stake in the vendor's business

According to a report this week in the Wall Street Journal, Amazon has made at least a dozen deals with publically traded suppliers in which it received warrants – the right to be a company’s stock at a specified price – that offer the potential for big payouts if the price of the vendor’s stock rises.

The Journal reports that Amazon has also done more than 75 such deals with privately held companies over the past 10 years.

“In all, the tech titan’s stakes and potential stakes amount to billions of dollars across companies that provide everything from call-center services to natural gas, and in some cases position Amazon among the top shareholders in those businesses,” the Journal article says.

The arrangement can also benefit the vendor through a big jump in revenue from an Amazon agreement. That revenue increase in turn can favorably impact the vendor’s share prices, improving the worth of the warrants Amazon received.

The arrangement in some cases also provided Amazon with a board seat at the vendor.

What’s more, executives at several of the companies that spoke with the Journal said they had little choice except to acquiesce to Amazon’s request to buy the warrants without risking the commericial deal with Amazon.

Amazon refused to comment on the article, except to say it has warrant deals in fewer than 1% of the commercial agreements it enters into.

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The article says that for years, Amazon has similarly used its order clout to push vendor companies into signing on to use its logistics services, such as the Fulfilled by Amazon (FB A) program.

The Journal cites a very specific example of the stock warrants in action. After doing business with Amazon for several years, food wholesaler SpartanNash got new terms from its customer: if Amazon bought $8 billion worth of groceries over seven years, it could get warrants to purchase around 15% of SpartanNash’s stock at a price potentially lower than the market.

After initially being stunned by the proposal, SpartanNash ultimately agreed to it – afraid of the ramifications of saying No, and also seeing some upside in the deal in terms of revenue and recognition.

The Amazon program has been around for some time, but accelerated in the past few years.

In its latest quarterly earnings report, the company valued its warrants at a whopping $2.8 billion, more than five times the level three years ago.


SCDigest note: For a company increasingly under scrutunity and criticism for its dominance, this seem like a very risky practice politicaly.


What do you think of Amazon's tactics her? Let us know your thoughts at the Feedback section below.







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