Amazon wrote stock warrants into supplier contracts so it shares the gains it creates

Ars Technica reported in June 2021, citing a Wall Street Journal investigation, that Amazon had been writing warrants, meaning rights to buy stock later at a set price, into large vendor contracts for about a decade, and more often in recent years. Its last quarterly report showed $2.8 billion in warrants, up fivefold in three years. The deals tend to be with companies that help Amazon run its business, not sellers on its site, and Amazon reportedly targets smaller firms that could see a big jump in business.

In 2020 Amazon amended its contract with grocery distributor SpartanNash, receiving warrants for 2.5 percent of the company and an option on another 12.5 percent if it bought $8 billion of groceries over seven years. SpartanNash's stock rose 26 percent the day the deal was announced. Clean Energy Fuels gave Amazon the right to buy up to 20 percent over ten years, which its executives hoped would keep Amazon from buying elsewhere.

Aircraft lessor ATSG resisted but agreed in 2016 after protracted negotiations; in 2021 Amazon exercised its warrants for 19.5 percent of ATSG, with the option to reach 39.9 percent if it leased more planes. Amazon also had warrant contracts with Atlas Air (up to 30 percent), Cargojet and Startek.

A contract with Amazon can lift a small supplier's stock, so the warrant lets Amazon share that gain.

A growing stake gives suppliers an incentive to keep serving Amazon rather than its rivals.

Tying extra warrants to extra purchases rewards Amazon for committing more volume.

The 2008 bank bailouts, which paid for rescue with warrants, served as Amazon's template.

A buyer whose orders move a supplier's valuation can price that effect into the contract, turning purchasing power into an equity stake.

By the report almost every company offered such terms accepted them. Former Amazon executives told the WSJ the deals were one-sided and that suppliers were in no position to refuse; Amazon was said to avoid writing that warrants were required for a contract. The ATSG warrants were exercised in 2021.