Behind the scenes on Amazon's deal for Zappos.com

As should be expected, Zappos.com has been on Amazon.com's radar screen for some time. In fact, the parties met up in mid 2005 (Amazon.com's CEO, Jeff Bezos, attended the meeting). For the most part, it was exploratory.

Rather, it was not until March 2008 that things got interesting. An Amazon.com executive made an overture to buy Zappos.com (it was at a dinner function). But, like many such moves, nothing happened.

It wasn't until early 2009 that Zappos.com got serious about a combination and the negotiations revved up. By mid March, Amazon.com began due diligence and in April, Zappos.com hired Morgan Stanley (NYSE: MS) as its financial advisor.

Interestingly enough, in May Amazon.com proposed an all-cash deal (yes, indicating that the feeling was the company's shares were undervalued). But, Zappos.com pushed back and wanted stock instead.

From there, both parties wrangled -- yet the deal stayed on track. And, by July 22, the buyout agreement was sealed.

Why pay such a high price? The S-4 lists some of Amazon.com's reasons: the importance of the retail category; the loyal customer base and strong brand (a "customer-obsessed culture"); the leveraging of technologies; and the fact that the management team wanted to stay on board.

At the same time, Zappos.com had similar reasons for the combination. Besides, with the heft of Amazon.com, there will certainly be many opportunities going forward. So, why not join forces?

Tom Taulli is the author of various books, including The Complete M&A Handbook.