Amazon Stock Slip Means Bigger Stake for AOL

Amazon.com (Nasdaq: AMZN) said Wednesday it plans to issue an additional 1.69 million shares of its stock to AOL Time Warner (NYSE: AOL) to make up for a shortfall in Amazon’s stock price over the past two weeks.

The move became necessary because Amazon shares, which stood at US$15.28 after it announced that AOL would invest $100 million in the e-tailer, had slipped to $12.55 by July 30th. Amazon revealed the plans to issue the additional shares in a filing Wednesday with the U.S. Securities and Exchange Commission (SEC).

As a result, AOL will now receive about 8.23 million shares of Amazon stock, or about 2.3 percent of the approximately 363 million shares in circulation.

Originally, Amazon planned to sell a 1.8 percent stake to AOL in exchange for the cash investment, which the e-tailer says it plans to use for general business purposes, for strengthening its financial position and for possible acquisitions or new business offerings.

Door Open

The supplemental filing does not change any other details of the deal, which was announced on the same day that Amazon reported its quarterly earnings. For example, AOL is still limited in its ability to buy and sell Amazon shares for a two-year period.

However, the filing also does not rule out what analysts say is a possible buyout of Amazon by AOL after that standstill period expires.

The original filing said that AOL may approach Amazon about an outright buyout, but only if it deals with the company’s directors and does not go public about its takeover attempts.

Mixed Bag

Despite beating Wall Street estimates by reporting a loss of 16 cents — compared to a 22-cent shortfall predicted by analysts — and receiving the unexpected cash infusion from media powerhouse AOL, Amazon stock has slipped since the deal was announced.

In the hours before the announcement, the stock traded as high as $16 per share, about 25 percent higher than its price at the end of the month. Amazon was at $12.25, down 25 cents, in early trading Thursday.

Analysts have had mixed emotions toward Amazon of late. While some eagerly anticipate profitability — Amazon has pledged to turn an operating profit by the end of the year — others worry about an apparent slowing of revenue and sales growth in Amazon’s core business areas.

Legal Fly in Soup

Meanwhile, the stock of Amazon is now the focus of a shareholder lawsuit filed against Morgan Stanley Dean Witter (NYSE: MDW) and Morgan Stanley analyst Mary Meeker. A Pennsylvania-based law firm filed the suit in federal court in New York on behalf of certain Amazon shareholders, alleging that Morgan Stanley failed to properly separate its stock recommendation and underwriting functions.

While Amazon is not a defendant in that suit, the company and chief executive officer Jeff Bezos have been targeted with other suits in the past that alleged that the company failed to fully disclose financial information.

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