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Technology Stocks : Amazon.com, Inc. (AMZN)

AMZN 233.22

+1.8%

Nov 28 9:30 AM EST

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To: Deepak who wrote (3388)	4/26/1998 4:34:00 PM
From: Don Westermeyer	Read Replies (1) of 164684

Deepak, - The advantage of issuing debt is that the stock price will not be negatively affected as it would be if new equity was issued (due to dilution). Actually, the stock price should react positively to this news because it reduces the likelihood that more equity will be issued. Yes the stock will continue to attract dreamers. Only when the float increases to 15 million shares or so will the stock trade more in line with fundamentals. - A company that issues debt is also signalling to the market that it expects to have positive free cash flow (ie. be profitable) because the interest payments have to be paid on a regular basis. A company which expects to have losses for some time to come NEVER issues debt. More likely they expect big losses and some further expansion. - I personally think some kind of deal is in the works. If AMZN is planning on buying someone, they should have used the now common method of taking advantage of using their strong stock price as currency for payment. But since they are instead issuing debt, it suggests that the target company may have baulked at a stock swap arrangement (possibly because AMZN stock is so volatile and the target management was afraid that they will be paid in stock whose value could drop by half anyday). I don't think AMZN is financially strong enough to be on an acquisition binge, unless it is something very small. They probably need financing for distribution centers or something. - Another interesting possibility is that AMZN itself is the target of a takeover. If it wanted to avoid such a takeover, it would have issued a lot of new stock (this is how poison pills work). But if its a target and it wants to proceed with the takeover (ie. AMZN wants to sell) AMZN would issue debt. This way the company which buys AMZN is financing the deal to some extent with AMZN's own cash. If this doesn't make sense, just remember that companies with lot of cash are attractive takeover targets. No way! Who would make that kind of foolish investment? AMZN doesn't need a poison pill in any case. One, too much of the stock is held by insiders and two, there isn't enough equity in the company to 'destroy'.

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