Amazon abandons R26-billion iRobot acquisition

Amazon.com Inc. has abandoned its planned $1.4-billion (R26.36 billion) acquisition of Roomba maker iRobot Corp. after clashing with European Union regulators who had threatened to block the deal.

The fallout came quickly. IRobot, which has been struggling recently, said chief executive officer Colin Angle has stepped down as the company embarks on a restructuring plan that will result in about 350 job cuts, or 31% of the workforce.

The vacuum maker’s shares tumbled 19% in New York to $13.80, their lowest level since 2009. Amazon’s shares were up less than 1% at $160.07.

The decision is a sign of the intense pressure Amazon is facing to prove its actions don’t harm competition as its influence grows in retail, cloud-computing and entertainment.

Antitrust regulators on both sides of the Atlantic have been keen to ensure that the biggest US tech companies don’t snap up innovative startups before they have a chance to become formidable competitors on their own.

Amazon met with the FTC’s senior antitrust staff last week, who informed the company they were recommending a suit over the deal, according to a person familiar with the meeting.

Executives and lawyers from the tech giant were scheduled to meet with the FTC’s three commissioners this week to make a final push for the acquisition, said the person, who asked not to be named discussing the confidential probe.

The European Commission, the EU’s executive arm that oversees antitrust, is generally known to opt for remedies that correct any risks to fair competition rather than ban mergers outright.

But companies often short-circuit the process by choosing to abandon deals that appear to be headed for a veto.

Amazon’s move, which comes with a $94 million termination fee to be paid to iRobot, follows a similar decision recently by Adobe Inc. to walk away from a planned $20 billion acquisition of startup Figma Inc. after locking horns with antitrust regulators in the EU and the UK.

Amazon decided not to offer remedies to concerns flagged by regulators.

The commission had earlier warned Amazon could be tempted to demote other robot vacuum cleaners on its platform and promote its own products with such labels as “Amazon’s choice” or “Works With Alexa.”

The regulator also said Amazon may find it “economically profitable” to shut out rivals and had attempted to pressure Amazon into offering concessions in order to get the green light in Brussels, to no avail.

“This outcome will deny consumers faster innovation and more competitive prices, which we’re confident would have made their lives easier and more enjoyable,” said David Zapolsky, Amazon senior vice president and general counsel, in a statement.

“Undue and disproportionate regulatory hurdles discourage entrepreneurs, who should be able to see acquisition as one path to success, and that hurts both consumers and competition—the very things that regulators say they’re trying to protect.”

While the company considered an appeal, that process was likely to take years, people familiar with the matter said, who asked not to be named discussing information that’s not public.

The merger agreement expires this summer and the companies had already renegotiated the terms once.

“Financially, this deal is immaterial to either sales or profit of Amazon,” Bloomberg Intelligence senior analyst Poonam Goyal said in a note Monday.

But broadly speaking, she said, the termination “supports our view that large technology companies will have a tough time closing any acquisition given the current regulatory climates in the US and Europe.”

The breakup also spares Amazon the task of stemming the losses incurred by Bedford, Massachusetts-based iRobot, which has seen its fortunes sour in recent years.

Last year iRobot was forced to secure a $200 million financing facility, and Amazon cut its per-share offer by about 15%.

IRobot’s sales have fallen as pandemic-era home improvement splurges petered out.

The company, which had been consistently profitable since its 2005 initial public offering, has racked up about $500 million in net losses since the second quarter of 2021.

In a financial update on Monday, the company said it had an adjusted operating loss of about $200 million in 2023.

Amazon, which builds the Alexa voice assistant and a wide range of home electronics, announced its intention to acquire iRobot in August 2022, a move that would have expanded its foothold in the burgeoning market for smart-home gadgets.

The Seattle-based company has also developed its own home robotics franchise with Astro, a $1,600 home security bot it has started marketing as a business security guard.

Amazon and iRobot have been close partners for years.

The retailer has long been iRobot’s biggest customer, at times accounting for more than a quarter of sales (iRobot in 2021 stopped disclosing the identity of its biggest customer, which, during the most recently reported quarter, accounted for about 22% of revenue.)

The vacuum maker, meanwhile, is a customer of the Amazon Web Services cloud-computing group, and has dispatched executives to speak at Amazon events.

The opposition to Amazon’s iRobot acquisition highlights the tension between Amazon’s retail operations and its ambitions for the smart-home ecosystem built around its Alexa voice assistant.

The FTC has also expressed concern that the deal would give Amazon too much control over the smart-home device market and potentially violate users’ privacy by giving the company access to data on their homes.

In an apparent warning shot for Amazon’s future acquisition plans, the European Commission said it would keep a close eye on deals where “established sales channels acquire suppliers that are heavily dependent on the acquirer’s infrastructure and customer reach to be successful.”

Though small for a company the size of Amazon, an iRobot acquisition would have been the fourth-biggest in its history, trailing only its purchases of Whole Foods Market, movie studio MGM and the One Medical concierge health-care service.

Regulators in Europe and the US are increasingly skeptical of Big Tech’s dealmaking.

In September, the EU regulator nixed Booking Holdings Inc.’s €1.6 billion bid for Sweden’s Etraveli Group and the bloc is in the very early stages of looking into Microsoft Corp.’s partnership with OpenAI.

In the US, the Biden administration set a record for merger challenges.

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Amazon abandons R26-billion iRobot acquisition