Cramer: Amazon's world domination
Jim Cramer | [email protected]
On one side is Best Buy with cash flow declining like lightning that might go private in part because a former CEO and founder can't believe how his colossus has fallen. On the other side is Amazon, which yesterday raised $3 billion in a bond offering for general corporate purposes.
One founder, Richard Shulze, wants to lay on billions of dollars in high-cost debt to take advantage of the low price of Best Buy, undoubtedly with hopes of bringing it public again one day in more forgiving times. I can only imagine the size of that coupon--could they borrow at 5 percent, 6 percent, 8 percent?
Then there is Jeff Bezos, borrowing at 3-, 5-, and 10-year intervals for 0.742 percent, 1.301 percent, and 2.601 percent. Those are Uncle Sam-like rates for a business enterprise. Incredible, given how Amazon was often always considered one step from bankruptcy when Bezos was building it.
Best Buy and Amazon are mortal enemies. How many times a day do people sample at Best Buy, get hassled about taking the warranty, and be offered a price that may not be as good as Amazon's for a product that you have to carry to your house? How many people pay taxes at Best Buy and don't pay taxes on Amazon?
Yet one is going to be armed with incredibly high-cost debt while the other is borrowing as if it has triple-A credit rating. Best Buy's not bringing a knife to this gunfight; it's coming empty-handed.
Of course, there are some real ironies here. First, Best Buy would be taking on debt to go private and shrink. Amazon is taking on debt because there are so many opportunities to grow.
Best Buy might not make it if it does nothing. But who the heck would take down the debt that Schulz is offering? Perhaps the same people who took down the debt of the Tribune Corporation when it went private, the employees? That was the last time I heard about a deal that would be this dumb.
But Amazon? With that amount of capital and at those prices, not only does it have a chance to put Best Buy in an early grave but it also can go after almost every retailer that is burdened by high-cost debt and brick-and-mortar leases.
Without being bound by the credit required to finance inventory or the need to pay ever-escalating rents to Federal Realty or Simon Properties or Kimco for real estate, Amazon's just an overwhelmingly powerful opponent.
The additional funds will, no doubt, allow it to build out its infrastructure so you can get same-day shipping at probably every major urban area in the country.
Perhaps the most salient part of this bond deal? It's the fact that Amazon has opportunities that big. I bet if you asked most of the retailers in this country what they could do with $3 billion they would say "I don't know, we are pretty much everywhere we want to be already, maybe we can buy back stock."
They'd probably use it to buy back stock or pay special dividends. Amazon? It wants to raise money to take over the world.
And at these prices, it might just be able to do it!
Disclosures: Cramer's charitable trust has no positions in the stocks mentioned.