Amazon Buys Zappos For $850 Million announced today that it would purchase online apparel and footwear merchant in a deal worth more that $850 million.

Under the terms of the agreement, Amazon will acquire all of the outstanding shares and assume all outstanding options and warrants of Zappos in exchange for approximately 10 million shares of Amazon common stock, equal to approximately $807 million based on the average closing price for the 45 trading days ending July 17.

In addition, Seattle-based Amazon will provide Zappos employees with $40 million in cash and restricted stock units. Subject to various closing conditions, the acquisition is expected to close during the Fall of 2009.

In an e-mail distributed today to Zappos employees, Zappos CEO Tony Hsieh said Amazon reached out to Zappos “several months ago” and said it wanted to join forces and help grow the Zappos brand.

“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,” Hseih wrote in the e-mail.

“Over the past several months, as we got to know each other better, both sides became more and more excited about the possibilities for leveraging each other’s strengths,” Hsieh wrote. “We realized that we are both very customer-focused companies – we just focus on different ways of making our customers happy.”

Amazon said in a press release that the Zappos management team will remain intact, and that Zappos will operate its brand independently with headquarters in Las Vegas.

Though Hsieh echoed in the e-mail that there are no plans to reduce headcount, Amazon may want to use Zappos’s warehouse in the UPS Worldport hub in Louisville because Amazon does not have a presence there.

“Right now, both Zappos and Amazon believe that the best customer experience is to continue running our warehouse in Kentucky at its current location,” Hsieh wrote.

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