Spartannash Company : The Amazon Warrants (A)

As of 12/31/21, Amazon held $22 billion of equity and warrants in related companies. In fact, it often requests a free grant of warrants when it enters into a new commercial agreement with a supplier. Over the past 20 years, Amazon has gotten warrants almost 20 publicly traded companies and more than 75 private companies; in a few instances, it has gotten multiple grants from a single firm. Combined, Amazon held $3.4 billion of warrants as of year-end 2021. This case explores one of the recent transactions in which Amazon requested warrants as part of signing a new commercial agreement with SpartanNash Company, the fifth largest food distributor in the United States.In September 2020, shortly before Tony Sarsam became CEO of SpartanNash, Amazon proposed a new 2-part agreement. The first part involved a revision to the existing commercial agreement that governed distribution of grocery items from suppliers to Amazon warehouses. The second part involved a free grant of “at-the-money” warrants to buy up to 15% of SpartanNash’s shares. The warrants would vest over seven years based on Amazon’s cumulative purchases from SpartanNash up to a total of $8 billion. Compared to Amazon’s current spending of approximately $400 million per year, this proposal represented a significant opportunity for SpartanNash to grow with one of America’s largest and fastest-growing retailers. But that opportunity came at a cost (giving Amazon warrants). Should Sarsam accept the proposal, reject it, or try to renegotiate aspects?More generally, students must assess whether this was an example of a powerful buyer exerting market power over a smaller supplier, or was it an example of a new dynamic partnership that would align interests and share gains through common ownership. In other words, was Amazon's proposal coercive, collaborative, or both?This case has four objectives: It allows students to: 1) explore the concept of bargaining power in a buyer-seller relationship; 3) explore why Amazon signs warrant agreements with suppliers rather than negotiating more aggressive transaction terms (i.e., lower prices); 3) assess whether (an in what ways) common ownership is likely to align interests or create friction in a buyer-seller relationship; and 4) value warrants rather than options--when the grant is sufficiently large, the values can diverge