Shares of Amazon.com (Nasdaq: AMZN) slipped 3 3/4 to 135 3/16 on Thursday after the online retailer announced plans to raise $2 billion through debt and securities.
The latest cash infusion comes for Amazon.com just months after the online retailer sold $1.25 billion of convertible notes in January. The convertible notes have a yield of 4.75 percent. The company pays out dividends on the 10-year notes, unless the shares rise to a certain preset price, $156.05. At that exercise price, Amazon can convert the notes into common stock, thus ending the payment of dividends. The cost, however, is a greater volume of shares, which dilutes the stock's value.
With more debt, likely to also take the form of convertibles, Amazon increases its risk of being stuck holding debt, if shares fail to keep climbing or face an even greater dilution of its shares. Amazon.com hasn't been alone in selling convertible debt. CNet Inc. (Nasdaq: CNET) and Net.B@nk Inc. (Nasdaq: NTBK) both have filed to sell convertibles.
Amazon can decide down the road what form the debt will take, then file to sell the securities, taking some of the $2 billion "off the shelf." The offerings could take the form of common shares, preferred stock or other securities.
Concerns about Amazon's penchant for raising cash may be outweighed by a potential IPO windfall from its stake in Drugstore.com. Drugstore.com Inc. (proposed ticker: DSCM) has filed for a $67.5 million initial public offering.
Drugstore.com, which began selling to the online medicine and personal-care market in February, is 43.8 percent owned by Amazon.com. Kleiner Perkins Caufield & Byers, Paul Allen's Vulcan Ventures and Starbucks Corp. chairman Howard Schultz are also among the company's investors.
Amazon also holds a 35 percent stake in HomeGrocer.com and a 50 percent stake in Pets.com, which are both private companies, but could increase Amazon's war chest with an IPO.
Pets.com's business, an online community for pet lovers as well as an e-commerce Web site, has been building its management team in recent months and plans to go public.