Amazon.com’s attempts to swallow a robot vacuum maker are in danger of leaving a bigger mess. More than a year after the e-commerce giant announced a now-$1.4 billion takeover of iRobot, the European Commission has warned the tie-up could shut the door on rivals to the Roomba maker. The concerns speak to ongoing worries over Amazon’s market clout – but if the deal collapses, it’s iRobot shareholders who will suffer more downward suction.
The Commission, which is reviewing the deal alongside British and American merger cops, on Monday published its objections. Top of the list is the concern that Amazon could give Roomba sales a boost by making rivals less visible on its giant online marketplace. If that sounds familiar, it’s because EU and U.S. regulators have already been pressing Amazon on what they claim is anti-competitive treatment of independent merchants. Amazon has agreed to abide by certain behaviors to allay concerns in Europe; in the United States, trustbusters are suing.
Though there isn’t a clean breakdown of how many homeowners buy their robot vacuums through Amazon, the roughly 23% of revenue iRobot said it generated from one retailer is suggestive of its dependence on one sales platform. Read simply, the Commission’s objections read like an argument against allowing Amazon to own any business that sells products through the Seattle-based company’s website. Though Amazon could promise not to specifically boost Roombas, that might not be enough.
iRobot’s shares fell 18% on the news to around $35, worth only a little less than they fetched a month or so before Amazon swooped in with a cash offer worth $61 per share in 2022. Yet an independent iRobot would likely be worth much less. Sales are projected to fall 29% this year, according to LSEG data, leaving them almost 50% below 2021 levels. The collapse has left iRobot bleeding cash and forced to take on a punishing loan from buyout shop Carlyle to keep afloat, which allowed the buyer to cut the deal price to $51.75. If Amazon is thwarted, investors expect iRobot shares to fall to between $5 and $15. In other words, the current share price implies roughly coin-flip odds of success.
Amazon is contractually committed to litigate in defense of the deal and may yet persuade European and other regulators to let it go ahead. Investors have little choice but to suck it up.
The European Commission on Nov. 27 issued a statement of objections regarding Amazon.com’s proposed $1.4 billion acquisition of robot vacuum maker iRobot. The Commission said that its investigation found that Amazon may have the ability and incentive to shut out rivals to iRobot on its marketplace by reducing their visibility or pushing certain product labels for the company’s products. Amazon said it was working with the Commission to address its concerns. iRobot shares fell more than 18% to close at $34.35 on Nov. 27. Amazon’s offer stands at $51.75 per share in cash.