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Rumors Underscore Urgency Of Amazon.com's Situation

It could be that Amazon.com may finally fulfill its goal of becoming the Wal-Mart of the Internet. Just not in the fashion that founder Jeff Bezos imagined.

Amazon.com and Wal-Mart officials have declined to comment on a report in The Sunday Times of London that the two companies are engaged in serious strategic-alliance talks, but the rumor is being greeted favorably by investors and analysts alike.

Shares of AMZN rose 26.25% to $12.63 on Monday, with Wall Street heavyweights such as Goldman Sachs giving a thumbs-up to the possible deal.

The surge saves (at least temporarily) Amazon.com shares from tumbling into the single-digits amid recent murmurs that the heavily bleeding e-tailer is running out of money and nearing bankruptcy. AMZN finished trading Friday at $10, its lowest closing price in more than two years.

However, before we ponder the advantages to Amazon.com of an alliance with Wal-Mart - and there are many - let's consider the possibility that the British newspaper is wrong, and no such negotiations are in the works.

One thing making me doubt the story is that, in the past few weeks, high-level Amazon executives have been selling large blocs of shares. Long-time Amazon.com board member Tom Alberg sold 130,000 AMZN shares between Feb. 21 and Feb. 28 at an average of $11.79 per share, while Bezos earlier last month unloaded 800,000 shares for $11.7 million, an average of $14.63 per share.

If these smart guys knew a partnership was brewing with Wal-Mart - one that could ensure Amazon.com's long-term survival - why would they dump shares in February, before the inevitable run-up that would ensue from news of such a mega-deal?

Of course, it could be because another story from a foreign news source was true. A German newswire service last Wednesday reported rumors that AMZN had filed for bankruptcy protection under Chapter 11, sending shares down 13% in one day.

The German newswire, though, cited "sources outside the U.S.," probably not the best place to turn for the inside dope on American bankruptcy filings, so should be taken with a large grain of salt.

Still, it's obvious that unless Amazon.com does something to turn around its finances - and fast - it is headed for a bad end. And that's why a business arrangement with Wal-Mart might make sense. As outlined in the Sunday Times, the e-tailer would get a much-needed cash infusion (amount unspecified) and a presence in Wal-Mart's 4,500 stores via special Amazon.com kiosks. Not to mention the potential removal of the air of doom that has helped AMZN lose 90% of its value over the past 15 months.

In return, Amazon.com would be charged with whipping Wal-Mart's ragged online efforts into shape, much as it has done for Toys 'R' Us, which two years ago was supposed to have its clock cleaned by eToys. (Guess who's still standing?) AMZN also likely would share in revenues from Wal-Mart's online sales.

The largest retailer in the world teaming up with the largest e-tailer in the world. It could work. And it could be a prelude to a merger.