Amazon reportedly pressuring suppliers for a discounted stake in their businesses

It has struck deals to potentially buy stock in dozens of vendors at below-market rates.

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Kris Holt
June 29, 2021 10:55 AM
In this article: amazon, news, gear, supplier, business, vendor
NAPLES, ITALY - MARCH 22: A worker inside the Ariete 1 warehouse, during the first Amazon workers strike on March 22, 2021 in Arzano, Italy. The first strike of Amazon workers organized by the CGIL, Cisl and Uil unions at the Arzano headquarters was totally deserted by the workers who did not join the presidium to which, in addition to the unions, some formations of the extra-parliamentary left joined. The unions had called the strike day to ask for a review of many aspects of staff contracts: workloads, shifts, meal vouchers, bonuses, travel allowances and reduced working hours, and a general stabilization of drivers, the logistics sector and the administered employees. For some trade unionists, the absence of workers from the garrison should be read as "fear that their contracts will not be renewed". (Photo by Ivan Romano/Getty Images)
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Amazon has reportedly struck dozens of deals with suppliers to buy stakes in their companies, potentially at lower rates. It has scooped up warrants for at least a dozen publicly traded companies and more than 75 private businesses, according to The Wall Street Journal. Amazon's stakes and potential stakes in those organizations is worth billions of dollars.

Warrants work in a similar way to stock options. Holders of warrants can buy shares at a fixed price during a certain period. If the share price rises during that time, the warrant holder can swoop in and buy a stake in the company at a below-market rate.

Amazon is said to have warrant deals with Kohl's, aircraft-leasing companies, call center businesses and hydrogen fuel cell suppliers, among others. Some of the deals have made Amazon one of the top shareholders in the respective companies, according to the report. In several cases, the ecommerce giant has the right to board seats and an option to outbid any acquisition offers.

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Leaders at some of the companies suggested they couldn't turn down Amazon's proposals, else they could risk losing a big contract to a competitor. Some chalked up Amazon's demands as the price of doing business.

Amazon told the WSJ that warrant agreements are part of less than one percent of the deals it agrees with suppliers. In some cases, the warrants are connected to certain thresholds. They often don't come into effect until Amazon purchases a certain level of goods or services.

We've seen some other evidence of this strategy in action. Last week, Amazon ordered 1,000 autonomous driving systems from Plus, a company that develops such tech for self-driving trucks. It also has the option to buy up to a 20 percent stake in the startup.

Amazon has reportedly been engaging in this practice over the last decade or so, and it's said to have ramped up its efforts to secure warrants over the past few years. However, with Amazon facing deepening antitrust scrutiny, regulators may not look favorably on a report that suggests Amazon is pressuring companies into accepting terms that could require them to sell stakes at below-market rates.

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Amazon reportedly pressuring suppliers for a discounted stake in their businesses