Amazon.com is acquiring online shoe and merchandise retailer Zappos in a mostly stock deal valued at about $850 million. It is the biggest acquisition in Amazon's history.

“We see great opportunities for both companies to learn from each other and create even better experiences for our customers," Amazon CEO Jeff Bezos said in a news release.

The Zappos acquisition dwarfs other recent Amazon deals. The company spent a total of $432 million on acquisitions in 2008, about $300 million of which went toward acquiring audiobook company Audible.

Amazon said will "acquire all of the outstanding shares and assume all outstanding options and warrants of Zappos in exchange for approximately 10 million shares of Amazon common stock, equal to approximately $807 million based on the average closing price for the 45 trading days ending July 17, 2009."

Amazon will also give Zappos employees $40 million in cash and restricted stock units. The deal is expected to close in the fall.

Amazon said the Zappos management team in Las Vegas will remain intact and Zappos will continue to operate as its own brand.

"We think that now is the right time to join forces with Amazon because there is a huge opportunity to leverage each other’s strengths and move even faster towards our long term vision," Zappos CEO Tony Hsieh said in an email to employees today.

Hsieh said Amazon reached out to Zappos "several months ago," adding, "When they said they wanted us to continue to build the Zappos brand (as opposed to folding us into Amazon), we decided it was worth exploring what a partnership would look like."

Amazon currently sells shoes through its own ecommerce sites and through a separate brand, Endless.com. Bezos has made a point in the past of praising Endless and the shoe segment.

"One business that is rapidly growing and continues to surprise me is our shoe store, Endless.com, which we launched in 2007," Bezos wrote in April his 2009 annual letter to shareholders.

Amazon spokesman Craig Berman said the company will not stop selling shoes through Endless.com and its other sites as a result of the Zappos acquisition.

"Amazon plans to continue building our shoe store on Amazon.com as well as Endless.com and we are focused on making the experience even better for our customers," Berman said in an email. "There are no plans to shut down any existing stores based on the acquisition of Zappos."

"This gives them a bigger entry into this online shoe market in a big way," said Dan Geiman, an analyst covering Amazon for Seattle brokerage McAdams Wright Ragen. "Overall it appears to be a pretty good deal for them."

Privately held Zappos reached $1 billion in annual sales last year. The 10-year-old company is known for its quirky culture, including office parades, costume parties, free lunches, video games and a nap room.

Interestingly, Zappos CEO Hsieh has a track record of selling companies to local tech giants. He sold an advertising network called LinkExchange to Microsoft in 1998 for $265 million, according to his official bio.

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Amazon CEO Jeff Bezos' low-tech message to Zappos employees

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