Amazon to acquire Zappos

San Francisco Amazon.com announced late Wednesday it will acquire online footwear retailer Zappos.com.

The deal is worth about $928 million in cash and mostly stock.

Amazon said it will acquire all of the outstanding shares of Zappos and assume its outstanding options and warrants in exchange for approximately 10 million shares of Amazon common stock. It will provide Zappos employees with $40 million of cash and restricted stock units.

"A big part of the reason why Amazon is interested in us is because they recognize the value of our culture, our people, and our brand," said Zappos chief Tony Hsieh in a letter on the company’s blogsite. "Their desire is for us to continue to grow and develop our culture (and perhaps even a little bit of our culture may rub off on them)."

Zappos had about $1 billion in gross merchandise sales last year.

The company is known for exemplary service, free shipping and a free returns policy. It said Amazon will allow it to continue running its business as it always has.

Analysts are staunchly supporting the acquisition. In a Reuters report, Bernstein Research analyst Jeffrey Lindsay called it an "outstanding acquisition." But, added the report, the move also signals that Amazon has fallen short in its online shoe site Endless.com, launched in 2007.

"This is, in some ways, Amazon throwing in the towel on footwear because they've tried to compete with Zappos," said Forrester Research analyst Sucharita Mulpuru. "If you can't beat them, buy them."

Hsieh wrote a letter to his employees, saying, "We think that there is a huge opportunity for us to really accelerate the growth of the Zappos brand and culture, and we believe that Amazon is the best partner to help us get there faster.

Morgan Stanley, and Fenwick & West advised Zappos on the deal. Lazard advised Amazon.