Amazon.com Inc. refused to implement the deal for the acquisition of iRobot Corp.
The mentioned e-commerce giant made the specified decision after facing claims from European Union regulators. The EU authorities threatened to block the deal, which could have cost $1.4 billion.
iRobot, which has been facing difficulties lately, announced that the chief executive officer of this company, Colin Angle, has stepped down. Currently, the brand is starting to implement a restructuring plan. As a result of these measures, the number of jobs in the company will decrease by about 350, which is 31% of the workforce. The share price of the brand, which specializes in the production of vacuum cleaners, in New York showed a decrease of 19%, to $13.80, which is the lowest since 2009. The cost of Amazon securities, which offers the best American delivery service, remained virtually unchanged against the background of the news about the cancellation of the deal, amounting to $159.40.
The e-commerce giant’s decision indicates that it faces serious pressure. In the current terms, the company does not have to state but to prove that its actions in no way violate the norms of fair and equitable competition. In part, the external pressure on Amazon is because the brand is gradually turning into a large-scale multifunctional structure, the ecosystem of which is rapidly expanding. The company’s influence in the retail, entertainment, and cloud computing sectors is currently growing.
Antitrust regulators on both sides of the Atlantic are seeking to block deals for the acquisition of innovative start-ups by large brands before these organizations, which are at an early stage of existence, have a chance to become formidable independent competitors.
The media, citing an anonymous insider who is aware of the so-called behind-the-scenes details of Amazon’s actions, report that last week the company’s representatives met with senior employees of the FTC antimonopoly staff, who announced their intention to file a lawsuit regarding the implementation of the intention to acquire iRobot. There is also information that the executives and lawyers of the e-commerce giant were supposed to meet with three FTC commissioners this week. The relevant data was reported by an insider, noting that currently, the discussion of this topic is strictly confidential.
The European Commission, which is the EU’s executive arm overseeing compliance with antitrust laws, chooses remedies to eliminate any risks to fair competition but does not outright prohibit mergers. Against the background of such actions, companies are abandoning deals, concerning which there is a high probability of a veto.
Adobe Inc. in December halted the acquisition of startup Figma Inc. for $20 billion. This decision was made against the background of disagreements with the antimonopoly regulators of the United Kingdom and the EU.
Amazon will pay iRobot a $94 million termination fee. The e-commerce giant has decided not to offer remedies to concerns flagged by regulators. The European regulator has notified the company of concerns that Amazon may demote other robot vacuum cleaners on its platform and promote products with such labels as Amazon’s Choice or Works With Alexa. The watchdog also said that the e-commerce giant may perceive the shot-out competitors as an economic benefit. The regulator tried to put pressure on the company to force it to make concessions to obtain approval for the implementation of the deal, but these measures were in vain.
David Zapolsky, Amazon’s senior vice president and general counsel, said unjustified and disproportionate regulatory hurdles discourage entrepreneurs who should be able to view acquisitions as one of the paths to success. According to him, these realities harm consumers and competition, which regulators are trying to protect, according to official statements of the motives for their actions. David Zapolsky separately noted that against the background of measures taken by watchdogs, customers are deprived of fast innovations and competitive prices that would make their lives easier and more enjoyable.
The e-commerce giant has considered the possibility of an appeal, but the relevant process is likely to take years. This was reported by the media with reference to insiders who used the right of anonymity since this issue is confidential and does not belong to the category of public information.
The merger agreement expires in the summer of 2024. The e-commerce giant and the vacuum cleaner manufacturer have repeatedly renegotiated the terms of the agreement.
On Monday, January 29, senior analyst at Bloomberg Intelligence Poonam Goyal said that from a financial point of view, the deal, which has not been implemented, is not significant for Amazon’s sales or profits. The expert also noted that the termination of the contract is a confirmation of the opinion that it will not be easy for large technology companies to close any acquisition in the current regulatory climate in Europe and the United States.
Amazon gets rid of the need to compensate for the losses incurred by iRobot. The vacuum cleaner manufacturer, based in Bedford, Massachusetts, has recorded a significant deterioration in its financial condition in recent years. Last year, iRobot had to raise $200 million in investments.
Sales of the vacuum cleaner manufacturer’s products began to show a downward trend after spending on home improvement decreased, which reached peak levels during the coronavirus pandemic. Since the second quarter of 2021, the company has suffered net losses of about $500 million. The vacuum cleaner manufacturer conducted an initial public offering in 2005. Since then, iRobot has steadily made a profit for 16 years. The company’s financial report, released on January 29, indicates that the adjusted operating loss of the brand for 2023 will amount to about $200 million.
Amazon, which develops the Alexa voice assistant and a wide range of consumer electronics, announced its intention to acquire iRobot in August 2022. This deal could afford the e-commerce giant to expand its presence in the growing smart home gadget market. The company has created its own Astro home robotics franchise, a $1,600 home security robot. The e-commerce giant positions this device as a business security guard.
Amazon and iRobot are partners. The e-commerce giant has been the largest customer of the vacuum cleaner manufacturer for a long period. In the revenue structure of iRobot, Amazon accounts for about a quarter of sales. The vacuum cleaner manufacturer is a customer of the Amazon Web Services cloud computing group.
The deal, which failed to materialize, is a testament to the tension between Amazon’s retail activities and its ambitions related to the smart home ecosystem based on the Alexa voice assistant. The FTC expressed concern that the acquisition of iRobot would give the e-commerce giant too much control over the smart home device market and potentially violate user privacy by giving the company access to data about their homes.
The deal, which Amazon decided to abandon, could be the fourth largest in its history, behind the acquisitions of Whole Foods Market, movie studio MGM, and One Medical concierge health service.
The skepticism of European and American regulators regarding Big Tech deals is growing. In September, the EU regulator rejected Booking Holdings Inc.’s $1.7 billion bid for the Swedish Etraveli Group. The administration of the current US President Joe Biden has set a record for merger challenges.