Identify a corporate Capital Budgeting decision and analyse
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Please try to assist in answering the following questions
1. Identify a major corporate investment decision
I have in mind a M&A decision on a company, for example amazon acquires zappo.com in 2009 or recently march 2012 acquires Kiva Systems
2. Critically assess the company's motivation: economic or else?
3. Analyze the financing mix: debt or equity; rational (preferably with simple graphs/ charts to illustrate)
4. Critically assess the outcome: e.g. does it increase the market value of the corporation?
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Solution Summary
The solution identifies a corporate capital budgeting decision and assists with analyzing it.
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Amazon.com
Amazon.com is a Fortune 500 company based in Seattle and offers biggest selection of products over World Wide Web. Amazon.com is a customer centric company where customers can find whatever they want to buy online at lowest possible prices. There are several categories like Electronics, Books, Home, Toys, Kids, Apparel, Shoes, Jewelry, Health, Sports, Tools, etc. from which customers can pick products.
Zappos.com
Zappos is an online shoe and apparel company based in Nevada. It was founded in 1999 and since then has grown to become largest online shoe store. Main product line of the company is shoes which accounts for 80% of its business. The online store has more than 50,000 varieties of shoes of brands like Nike, Steve Madden, etc. One of the reasons for company's success is its free shipping and free return shipping. In 2008, Zappos hot $1 billion sales which was two years ahead of projection. An year later, the company debuted on Fortune's Top 100 Companies To Work For list at number 23.
The Deal
On July 2009, Amazon.com announced its decision to purchase Zappos.com Inc. Both Amazon and Zappos are focused on providing customers with the best possible service and selection. This acquisition brings together two companies that share common objectives. This is the biggest acquisition that Amazon has made in its 14-year history. In the past Amazon had stayed away from large acquisitions giving preference to small or mid-sized deals. It is reflected by the past in which Amazon acquired online audio-book web site Audible Inc. for $300 million and Chinese retailer Joyo.com Ltd. for $75 million (Wingfield, 2009). The deal reflects Amazon's effort to tap into internet sales of Zappos and apparel; a segment into which Amazon had little success in the past. Amazon had been trying to get successful over many years. The company even tried to compete with Zappos.com through Endless.com, but it could not do that. Amazon's strength had been electronics, DVDs and books. However, apparel footwear and accessories is a $23 billion market, which is far more than personal computers at $16 million and electronics at $11 million (Wingfield, 2009).
Post acquisition Amazon did not intent to put a halt to sales through Endless.com. Zappos has customer loyalty which even exceeds Amazon's customer loyalty base. For several months Amazon had been trying to join forces with Zappos and and accelerate the growth of Zappos business, culture and brand. Amazon did not want to put the brand under Amazon's umbrella; rather build Zappos brand. When Amazon's CEO Jeff Bezos visited Zappos headquarters in 2005, Zappos realized that they were the leading shoe sellers in the online world. Initially the offer was not well accepted by Zappos as there was a fear that Zappos would be folded into Amazon and its brand and culture might face the risk of disappearing.When Amazon came back in 2009, four years ...
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