Amazon buys second largest online bookseller in U.K.

On 4 July 2011, Amazon (NASDAQ:AMZN) announced its purchase of The Book  Depository, the second largest bookseller in the U.K. The deal came under harsh criticism from industry organizations, claiming it would give Amazon an unfair stranglehold on the U.K. book market. However after a lengthy investigation, England’s Office of Fair Trading (“OFT”) approved the acquisition on October 26th. The OFT reasoned that The Book Depository could not be considered a “competitor” under its antitrust analysis, because the additional market share gained by Amazon through the purchase does not materially affect competition in the marketplace. In other words, they saw The Book Depository as too small to matter. ^[1]

The OFT’s economists estimate The Book Depository to have a market share of between a 2 and 4 percent in the U.K.’s online book market. Estimates give Amazon upwards of 70 percent market share pre-merger. Additionally, they believe that Amazon will still face sufficient post-merger competition from other booksellers and is therefore not a monopoly.

Positioned for future growth

The Book Depository touts itself as one of the fastest growing online booksellers in Europe. It has the capacity to ship over 6 million titles worldwide from its fulfillment center in Gloucester, U.K. Currently, 20% of Amazon’s share price is derived from international sales. We expect to see continued growth in international sales as Amazon increases its market share through additional acquisitions.

While Amazon and The Book Depository are expected to operate independently for the foreseeable future, The Book Depository’s fulfillment center is an attractive asset for Amazon’s long-term growth in Europe and beyond. Having immediate, installed capacity to ship books and other goods from its new U.K. center allows Amazon to scale its operations almost seamlessly.

We expect Amazon to continue acquiring high-growth online booksellers as it continues to look for expansion opportunities in international markets. For example Flipkart, which is said to be the Indian equivalent of Amazon, could be another attractive takeover target (absent any regulatory issues).

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1. OFT Clears Amazon acquisition of The Book Depository, Office of Fair Trading, Oct 2011 [↩]