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Amazon, Wal-Mart mull tie
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March 5, 2001: 2:21 p.m. ET
Internet merchant and No. 1 retailer reportedly near e-commerce alliance
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NEW YORK (CNNfn) - Popular online retailer Amazon.com Inc. may be in talks to form a strategic alliance with Wal-Mart Stores Inc., the world's largest retailer, according to a weekend newspaper report.
Amazon founder Jeff Bezos and Wal-Mart CEO Lee Scott are hashing out a deal that could be announced in less than six months, according to Britain's Sunday Times.
Amazon.com (AMZN: Research, Estimates) shares skyrocketed $2.75, or 27.5 percent, to $12.75 in early Monday afternoon trading. Wal-Mart (WMT: Research, Estimates) shares slipped 56 cents to $48.36.
Amazon would gain a presence in Wal-Mart's 4,500 stores, a cash injection and a percentage of the sales it makes through Wal-Mart, the Times said.
 Neither firm would comment on the report.
Analysts said Monday such a deal makes sense for both sides since it could allow Amazon to cut distribution and logistics costs, bringing it closer to profitability, and would provide Wal-Mart Web ventures with much-needed, experienced resources.
Influential Merrill Lynch Analyst Henry Blodget said in a note Monday that such an alliance would give Amazon.com a presence in physical-world locations with enormous traffic and that it would be an effective marketing vehicle.
"Wal-Mart shoppers who might not otherwise use or think about Amazon would now encounter it every time they went shopping," Blodget said. "It would also eliminate a potentially large competitor."
He added that a deal likely would shift attention from Amazon's potential financial difficulties, giving the stock a boost.
From Wal-Mart's perspective, he said, an alliance would allow the retailer to continue focusing on store-based retailing while "outsourcing" its e-commerce strategy to Amazon, reaching more than 29 million customers worldwide.
The deal would be similar to one Amazon struck last fall with Toysrus.com, the online arm of the world's No. 1 toy retailer, Toys "R" Us (TOY: Research, Estimates). That relationship, which is under contract for 10 years, proved extremely successful during the holiday season and hastened the demise of Toysrus.com rival e-toys.
It was not clear Monday how an alliance with Wal-Mart might affect the Toysrus.com relationship since the two retailers compete head-to-head in the toy category, with Wal-Mart edging out Toys as the largest U.S. toy retailer. Worldwide, Toys "R" Us Inc. is the largest.
Michael Exstein, a retail analyst who follows Wal-Mart for Credit Suisse First Boston, was not surprised by the report, saying most of the discount retailers are exploring opportunities for the Web.
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Although he believes it would be a positive for Bentonville, Ark.-based Wal-Mart, he thinks it would barely make a splash on the sprawling chain's balance sheet.
"I think that Wal-Mart looks at everything. It has been bottom fishing in the dot.com debris now," Exstein said. "They bought the Garden.com infrastructure, and if you look at what Amazon has in place in terms of distribution, it makes sense to look at everything."
Amazon clearly would benefit from such a relationship.
"Amazon has been quite explicit about its desire to do other deals like Toysrus.com. Amazon needs more money. It would welcome the opportunity to leverage its expense base," said Sanford Bernstein analyst Faye Landes, who covers Amazon. "Wal-Mart has been very conservative on the buildout of its Web site." 
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