Competitors Gang Up On Amazon

Amazon.com shares sank 13 percent Wednesday on news that some of the company's biggest rivals are looking to combine forces to compete more effectively with the king of online retailing.

First, Germany's Bertelsmann AG agreed Tuesday to pay $200 million for a 50 percent stake in Barnes & Noble's (BKS) online subsidiary, Barnesandnoble.com. Each company will also contribute $100 million in capital to the venture.

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Amazon.com (AMZN)
Then CDnow (CDNW) and N2K (NTKI) confirmed in a brief statement a New York Times story that the two online music retailers are in talks about a possible merger. No agreement has yet been reached, the companies said.

The news, combined with a SportsLine USA (SPLN) revenue warning, sent Amazon.com's stock spiraling downward. With more than 3.4 million shares changing hands, Amazon was off 13 3/8 to 95. The company's 52-week high is 147, reached in July, and the low is 21 1/8, hit last October.

Bear Stearns analyst Scott Ehrens and portfolio manager Ryan Jacob said Amazon would be able to withstand the new competitive pressures. "I don't think it's going to affect Amazon," Jacob said.

Barnes & Noble and Bertelsmann, with their impressive capital resources, could have "nipped [Amazon] in the bud" two years ago but missed the opportunity, Jacob added. "Amazon's gotten too big at this point. They can match them tit for tat."

For the six months ended in August, Barnesandnoble.com generated $21.9 million in sales and boasted 700,000 customers. Amazon.com (AMZN), by comparison, sold $203.4 million worth of books and related items and had more than 3.1 million customers.

Meanwhile, CDnow and N2K are selling more CDs than is Amazon.com, which just got into the music business a few months ago. But Amazon's entry into their market has had a punishing effect on the companies' stock prices. On Tuesday, CDnow (CDNW) shares inched up 1/16 to 8, and N2K (NTKI) shares jumped 1 5/16 to 5 13/16, well below their 52-week highs of 39 and 34 5/8, respectively.

The merger is a good move, according to Jacob. "These uys," he said, "were butting heads too often in bidding up the price for [distribution] deals."

Written By Darren Chervitz