June 21, 2024

iRobot Shares Drop Over 30% After EU Plans To Block Acquisition

iRobot, the company behind the popular robotic vacuum cleaner Roomba witnessed a 33% slump in its share prices in Thursday’s extended trading.

The plunge comes right after reports surfaced about the EU’s antitrust watchdog intending to block Amazon’s acquisition of iRobot.

The US online retail giant plans to acquire iRobot for a whopping $1.4 billion – a move that the European Commission believes would restrict competition in the market for robot vacuum cleaners.

However, Amazon went on to defy the warning, declining to offer any remedies that would address the watchdog’s concerns. The commission is now considering vetoing the acquisition, which might also make future acquisitions more challenging for Amazon.

Competition Concerns Loom Over Amazon’s IRobot Competition

Amazon had announced back in August 2022 that it intends to acquire the smart vacuum maker for $61 per share. The all-cash deal valued iRobot at $1.7 billion.

However, the company later incurred fresh debt, leading to Amazon slashing the deal to $51.75 per share. The modified terms of the deal, under which iRobot was now valued at $1.4 billion, were published in July 2023.

The EC also expressed its concerns over Amazon potentially delisting rival products or reducing their visibility to grant iRobot an advantage.

While EU regulators cleared the updated deal, the bloc’s top antitrust watchdog, the European Commission warned that it would stifle competition in the market.

Amazon’s acquisition of iRobot can potentially hinder the latter’s rivals from competing on Amazon’s online marketplace – the largest in the world, the watchdog argued.

While Amazon has declined to comment on the matter, a January 10 report revealed that Amazon hadn’t offered the commission any concessions to gain its approval for the deal.

Following the report, iRobot shares closed down 19% on that day.  This was the eCommerce giant’s last opportunity to reduce or eliminate objections by the European Union. The EU now has until February 14 to either approve the deal unconditionally or veto it.

What Does This Mean For Amazon And IRobot?

The European Commission’s opposition to Amazon acquiring iRobot could pose significant difficulties for both companies. If the watchdog goes ahead with its plan to block the deal, it would likely weigh in on the smart vacuum manufacturer’s prospects as a standalone company.

Meanwhile, it would also hinder Amazon’s attempt to bolster its portfolio of smart devices by adding Roomba and similar products. As of now, Amazon is already a key player in the market with its smart security devices, thermostats, wall-mounted displays, and voice assistant Alexa.

They believe they are preventing harm to consumers by not allowing big technology companies to acquire businesses and making those categories less competitive.Gil Luria, analyst at Davidson & Co

Gil further added that iRobot’s financial outlook and health are of “little concern” to regulators.

The newly introduced rules under the EU’s Digital Markets Act could address the commission’s concerns about Amazon actively suppressing competition from rival companies.

However, the watchdog believes that considering the lengthy process involved in enforcing the DMA and the fact that it is yet to be challenged in court, blocking the deal would be the better option for now.

The deal is also awaiting approval in the US, still pending review by The Federal Trade Commission. The UK’s chief competition watchdog, the Competition and Markets Authority expressed in June 2023 that the deal wouldn’t hinder competition in the UK substantially.

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