Does Amazon REALLY Want to Acquire iRobot?

Shares of BLI Watchlist constituent iRobot (IRBT) fell nearly 20% this week after Amazon (AMZN) opted not to offer concessions to European antitrust regulators as it works to complete its acquisition of the home-robotics specialist.

This could mean one of two things.

Either Amazon is…

1. …content with the prospect of the deal getting struck down by regulators (hence the reason shares are falling), OR

2. …calling regulators’ bluff over the “statement of objections” letter issued by the European Commission back in November. In that letter, the EC outlined concerns that the deal could restrict competition in the robotic vacuum cleaner (RVC) market, putting the onus back on Amazon to address those concerns by volunteering changes to its European business.

I’m fine with either scenario.

Those of you who’ve followed my work know I previously owned iRobot stock for nearly a decade, and only sold around $60 per share shortly after the acquisition was announced in August 2022 (shares are currently trading just below $31). I’ve since watched with interest as the deal fell into regulators’ crosshairs, and — as a consequence of its delayed closing — as Amazon subsequently reduced its agreed per-share price to $51.75 after iRobot was forced to take on additional debt to fund operations in the meantime.

On one hand, if the deal falls through iRobot is more than capable of re-ramping its R&D and sales & marketing spend to go it alone. But buying and holding the stock now runs the risk that shares plunge again if the acquisition officially falls apart.

On the other hand, if Amazon is calling regulators’ bluff, we could still be looking at an interesting merger arbitrage opportunity should the deal receive approval without concessions.

If you’re wondering why Amazon would be so bold, recall the deal was previously set to receive unconditional approval in November before the statement of objections was issued. In fact, EC lawyers were reportedly opposed to sending the letter initially as they argued there was no antitrust threat worth considering.

This might just be a calculated bet by Amazon that the EU’s tepid objections are more bark than bite.

• iRobot’s current share price seems to reflect the market’s opinion that Amazon is happy to let its impending acquisition fall apart by opting not to offer changes to its European business. But I think there’s more nuance involved here, as Amazon might be calling European regulators’ bluff.
  
  Whether you think iRobot is destined to go it alone or view this as a merger-arbitrage play, it might be worth stepping back into a small speculative position now.

• New BLI Portfolio and Premium newsletter incoming! By popular demand, we’ll soon launch a premium version of the Bottom Line Investing newsletter. Among other perks, premium members will receive:

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• Palantir proves its worth in the healthcare sector: Fellow BLI Watchlist member Palantir (NYSE: PLTR) jumped this week after the AI software platform company highlighted an intriguing win in the healthcare space — a new multi-year partnership with infusion services leader Option Care Health (OPCH) through which Palantir’s software will be leveraged across Option Care’s entire technology stack.
  
  In November Palantir reported its fourth straight quarter of GAAP profitability, fueled in part by a 33% increase in U.S. commercial revenue that now represents a little over 20% of its total sales. Deals like this one will only aid Palantir’s momentum as it permeates virtually every sector.
  

• The market hated Tilray’s solid quarter: Cannabis products and alcohol beverage leader Tilray (TLRY) fell 15% this week after reporting a record quarter that was technically mixed relative to Wall Street’s expectations. Revenue was up 34% but arrived slightly below estimates, while its breakeven (non-GAAP) earnings beat estimates for a loss of $0.06 per share.
  
  Tilray also reiterated its pledge to achieve positive adjusted free cash flow (FCF) for the full fiscal year (ending May 31). That might seem overzealous considering it incurred more than $56 million in negative FCF in the first half, but I think it’s attainable when we consider it’s only just beginning to realize significant synergies with several recent acquisitions. I like Tilray stock at these levels.
  

• Future Cardia extended! I recently named Future Cardia as one of my top startups to watch in 2024, lamenting that its current crowdfunding round was set to close on January 17. Lucky for us, yesterday Future Cardia extended its offering end date to March 18, 2024.