Splitting the family business down the middle would make it easy for the index funds to strip the CEO of his executive power. But the settlement has to come from somewhere.
A week ago, Amazon looked invulnerable. The company had grown from online bookstore to sprawling conglomerate moving toward founder Jeff Bezos’ strategic objectives.
But that was before his shock divorce raised the question of how his 16% stake in the $800 billion company will shrink in order to fund the split.
After all, there’s reportedly no prenuptial agreement in place and she’s been around for the entirety of Amazon’s ascendency.
In Washington State, she can expect half of the community property. That’s a challenge when the overwhelming bulk of that wealth is sunk in his $126 billion in stock.
He can hand her close to 40 million shares and a few of their houses and call it even. But that’s where the headaches start.
The losing Wynn scenario
When I heard about the divorce, my first thought was boardroom dissent like what Steve and Elaine Wynn put their company through.
Elaine got close to half the family stock in exchange for giving up the voting rights and the right to sell. She was effectively locked in as a silent partner, a figurehead shoring up Steve’s continued control.
Making a similar covenant at Amazon can give MacKenzie Bezos a prestigious but non-executive role on the board. With up to 8% of the stock, she’d almost certainly be a candidate to serve as director.
Of course if she can’t vote, she’s a rubber stamp for what Jeff was going to do anyway. That’s all right. Arguably the entire Amazon board functions like that now, making suggestions but ultimately staying out of the founder’s way.
But Elaine Wynn kept hammering on her agreement until she finally got her votes and Steve sold out. It’s your call whether she knows more about the casino business than her ex.
And MacKenzie Bezos needs a way to liquidate whatever shares she gets for a simple reason. Unlike Wynn, Amazon doesn’t pay dividends and is unlikely to do so for the foreseeable future.
There’s no easy way to turn that asset into current cash flow short of selling a little stock now and then.
After all, that’s what Jeff does now. He’s been cheerfully lightening his stake by about $1 billion a year in order to fund other investments and the family lifestyle, in addition to paving the way for philanthropic ventures ahead.
Any viable divorce settlement needs to extend that same power to MacKenzie. Otherwise she’s still going to need cash and sooner or later the right judge will let her dump $60 billion in stock.
Of course that raises the question of how the market absorbs that added supply. The price would probably go down. It happens.
The real concern for Amazon believers would be diluting Jeff’s control. At the moment the four biggest ETF complexes technically outvote his 16% stake so they could work together to protest any radical moves he decides to make.
I don’t think he has a lot of truly revolutionary plans left for the company that would make institutions nervous, but Amazon’s aura relies on the sense that it goes where Bezos points it. Think of Apple under Jobs, Tesla under Musk.
Even defining the limits of his control would fray the illusion of the omnipotent founder. It’s not something believers want. Actively challenging Jeff would make it even worse.
I’m not convinced Amazon in its present state is worth its price. All the points have been filled in, but they’re not connected yet. They need the omnipotent founder to take them the rest of the way.
When his stake drops from 16% to 8%, the odds of a shareholder revolt rise. Cutting his control in half means it only takes Blackrock and Vanguard working together to outvote him. It’s unlikely, but the risk becomes real.
Liquid assets needed
There aren’t a lot of easy ways to satisfy a 50-50 divorce decree that don’t involve diluting Jeff’s control.
He’s sold a lot of stock over the years but it remains by far the biggest and most liquid family asset.
The rocket company might be worth $3 billion on a good day. At least that’s roughly what he’s plowed into it and its 300,000-acre Texas testing range.
Nobody’s going to buy it at this stage. He loves it, so he’s vanishingly unlikely to want to sell.
Likewise, the family venture capital portfolio is relatively tiny, maybe $2 billion sunk into private companies like Uber and Airbnb. They’re not liquid.
Besides, even if Jeff simply hands MacKenzie everything but the Amazon, it’s far from an even split. And then she still needs to resolve the liquidity issue because rockets and Uber are even farther from creating regular shareholder cash flow than Amazon.
She could get all the houses and control of the philanthropies. It’s not even a rounding error measured against the $126 billion Amazon stake.
The good news is that the divorce seems relatively amicable so far. They’re putting up a united front.
But united fronts aren’t eternal. As people go through life, alliances of convenience weaken. Cracks emerge.
It would be better for Amazon to institutionalize the united front by keeping the 16% stake together. The exes could hold the stock jointly and agree to a mutual automated sell schedule to generate current cash to share.
In the meantime, Jeff would keep the voting rights.
MacKenzie doesn’t seem to want a voice in the company. She’s a smart lady, they met in his hedge fund days and that particular firm doesn’t hire anyone stupid.
But her agenda never really intersected with retail domination. Jeff’s grand plan isn’t hers.
All their advisors need to do is make sure she’s happy with her exit while ensuring that the details don’t cut into long-term shareholder value.
He’s already lost her. The goal now is making sure he keeps the company.
And that’s an argument he should’ve had years ago. There’s no real succession plan here, no trust holding the stock safe for future generations.
Amazon doesn’t even carry life insurance on him. They’re all prisoners of his mortal frailty.
Divorce hit before death or disease, but it was only a matter of time. That’s the biggest lesson of all here: Jeff Bezos never guaranteed Amazon would continue on its path without him. We’re closer to that scenario now than ever.
It’s still a long way away, of course. But the final split is coming. I hope the institutional investors are prepared.
