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Breakingviews

$16 Billion Bond Sale Shows Amazon’s Power to Pursue Deals

Amazon has sold $16 billion in debt to finance its acquisition of Whole Foods Market.Credit...Carlos Jasso/Reuters

Amazon’s aggressive salesmanship now extends to its own debt.

Its blowout $16 billion bond sale suggests almost unlimited potential for Amazon, the retailing juggernaut, to consider even more shopping. Yet in nearly tripling its financial obligations to buy brick-and-mortar Whole Foods Market, Jeff Bezos’s company is starting to look more traditional. The risk is that its stock will, too.

Mr. Bezos built his online empire by investing cash flow into the business and eschewing conventional corporate finance tools like debt and dividends. A result is a $472 billion goliath — the fifth-largest American enterprise by market capitalization — that has store owners and technology companies quaking over its ambitions.

Amazon could have financed the Whole Foods deal by issuing stock with only minimal dilution of his 16.6 percent stake. But as Tesla’s Elon Musk did last week, Mr. Bezos took the cheap money available in the fixed-income market. Investors submitted nearly $47 billion in bids, and the company was able to sell its paper at razor-thin margins, including a premium to comparable United States Treasury bonds of just 1.45 percentage points for $2.25 billion of 40-year bonds. A need for yield and a belief that Amazon will triumph from the retail shakeout that it is provoking created a powerful cocktail.

The deal will nearly triple Amazon’s outstanding debt, to slightly more than $23 billion. That is about a billion dollars less than the consensus estimate for its 2018 earnings before interest, taxes, depreciation and amortization, or ebitda.

Given the company’s cash pile, net debt will be even lower at less than $10 billion. That leaves the underleveraged Amazon with enough financial firepower to consider acquisitions that would make Whole Foods look like an appetizer.

Whether that would be good for the company’s stock is less clear. Belief in the Bezos vision has pushed Amazon shares up nearly 31 percent this year, and they are trading at 120 times 2018 estimated earnings as calculated by Thomson Reuters Eikon. Walmart Stores, by contrast, fetches 17.6 times earnings. As Amazon begins to more closely resemble peers in its physical footprint and its balance sheet, that gap will inevitably narrow.

Tom Buerkle is associate editor of Reuters Breakingviews. For more independent commentary and analysis, visit breakingviews.com.

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