Regulatory bodies can have the power to dramatically alter the outcomes of major deals, and retail investors should diversify across regions and industries in order to minimize any adverse regulatory actions that arise from antitrust concerns.
Since last July, the European Commission has been carefully monitoring Amazon’s plans to purchase iRobot, with concerns that Amazon might use their platform unfairly to disadvantage iRobot’s competitors.
Shares plummet on report of EU plans to block Amazon acquisition
iRobot, maker of Roomba robot vacuum cleaners, declined 39% in after-hours trading Thursday following a report in The Wall Street Journal which indicated European antitrust regulators may consider blocking Amazon’s purchase of the company. According to this source, EU competition regulators warned Amazon representatives during a meeting Thursday that this deal is likely to be blocked because it raises antitrust issues.
In November, the European Commission issued a preliminary determination that Amazon’s proposed deal may limit competition in the market for robot vacuum cleaners (RVCs). They believe Amazon may use its dominance over RVC sales on its marketplace to block competitors from selling their products through Amazon or in its stores.
The situation illustrates the influence that regulatory bodies can have over major technology deals, and retail investors should be mindful of the risk regulatory interventions can pose to global stock prices and diversify their investments across sectors and regions – something the iRobot-Amazon experience should drive home to them.
iRobot’s share price could signal a value buy
A sharp drop in iRobot stock price could signal an opportunity for value investing, depending on whether the market overreacted to regulatory news. Value investors seek out companies trading below their intrinsic values; hence the sudden plunge could provide an opportunity to buy the company at a discounted price.
However, investors should remain mindful that this acquisition deal may still go through and that preliminary objections by the European Commission could still be overturned. Furthermore, it may decide to wait for further clarity from US Federal Trade Commission’s meeting this week on an unspecified topic which could include acquisition.
Investors should keep an eye out for iRobot’s earnings report in February and monitor for signs of progress with regulatory authorities. Meanwhile, diversifying investments across multiple industries and regions helps offset potential regulatory interventions which might disrupt M&A deals.
The deal could be blocked by the European Commission
Amazon could face significant hurdles with their plans to acquire Bedford-based robot vacuum maker iRobot from Amazon after meeting with European Commission antitrust watchdog officials on Thursday and being informed that any acquisition may be blocked due to concerns it will harm competition in the home robot market. According to The Wall Street Journal report, their representatives met with EU officials on Thursday who informed them the acquisition could likely be blocked due to antitrust concerns in regards to competition between rival home robot products in this sector.
If the deal is blocked by European authorities, it would mark the first time ever that European antitrust investigators thwart a merger approved by Washington. European investigators give more consideration to how any proposed merger may impact competitors than their US counterparts do.
European and UK regulators have recently shown increased scrutiny on big technology companies by way of antitrust investigations and new digital laws which seek to reign in tech titans such as Apple and Google. Recently, Microsoft changed their planned acquisition of Activision Blizzard to comply with antitrust officials in the UK by altering its acquisition plan accordingly.
iRobot’s share price could drop further
While iRobot’s stock price has seen significant decrease over the last year, the company remains profitable and attractively valued. Investors should take note of its recent volatility as well as closely follow its fundamental metrics when considering investing in its shares.
Recent announcements by the company show earnings were significantly below expectations and project losses up to $0.02. Even when calculated using generally accepted accounting principles (GAAP), losses remain substantial for shares.
Wall Street Journal reports that Amazon representatives met this week with European antitrust officials and were informed that their plan to acquire iRobot is unlikely to pass European antitrust standards, specifically because competition may be hindered if competitors of iRobot are prevented from competing on its online marketplace – prompting concerns over potential competition damages caused by this acquisition, leading them to attempt blocking it entirely or possibly the US Federal Trade Commission following suit.
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