Lawsuit Claims Lack of Due Diligence in Amazon's Project Kuiper Launch
An institutional investor has initiated a lawsuit against Amazon and its board members, including founder and executive chairman Jeff Bezos, regarding substantial launch contracts awarded to Bezos' space venture, Blue Origin.
The lawsuit, brought forth by Amazon shareholders, the Cleveland Bakers, and Teamsters Pension Fund, alleges that the board approved the launch agreements for Amazon's Project Kuiper mega-constellation in less than 40 minutes, without even considering SpaceX, a leading launch provider and Blue Origin competitor.
The plaintiffs claim that Amazon's board failed to exercise due diligence in protecting the negotiation process from Bezos' apparent conflict of interest. The suit contends that the board spent minimal time before endorsing the allocation of Amazon's funds to Bezos' unproven and struggling rocket company.
Amazon introduced its satellite broadband endeavor, Project Kuiper, in early 2019. In the same year, the company sought regulatory approval for deploying a constellation of over 3,200 satellites into low Earth orbit, with an expected cost reaching several billion dollars.
The suit highlights the substantial challenge Amazon faced: securing regulatory clearance within a nine-year timeframe to place its entire satellite constellation into orbit, necessitating negotiations for numerous rocket launches across various providers.
When regulators approved Amazon's license for its satellite project in July 2020, Amazon management informed the company's Audit Committee of negotiations with Blue Origin and three other launch providers for Project Kuiper's launch contracts. These providers included Arianespace, United Launch Alliance, and an undisclosed third company.
Remarkably, SpaceX was apparently never considered as an option, a fact that bewildered the plaintiffs in the lawsuit. They expressed bewilderment that the renowned, reliable, and widely recognized launch provider, SpaceX, was omitted from the selection process, labeling it "inexplicable."
Ultimately, Amazon chose European firm Arianespace, along with Blue Origin and United Launch Alliance, which employs Blue Origin-manufactured BE-4 engines in its Vulcan Centaur rocket.
While the precise value of the contracts remains redacted in the public version of the lawsuit, the plaintiffs assert that the launch contracts across all providers represent the second-largest capital expenditure in Amazon's history, with the largest being the acquisition of Whole Foods for $13.7 billion. Approximately 45% of the total contract value reportedly went to Blue Origin.
To date, Amazon has spent roughly $1.7 billion on the launch contracts, with $585 million directed to Blue Origin.
The legal action also references the ongoing competition between Blue Origin and SpaceX, both vying for similar contracts, with SpaceX generally emerging victorious. Personal tensions between Elon Musk and Jeff Bezos are also cited in the lawsuit.
The lawsuit was filed in Delaware's Court of Chancery and was initially reported by the Delaware Business Court Insider earlier this week.
