Shares of consumer robotics firm iRobot (NASDAQ:IRBT) — which specializes in automated vacuum machines — suffered a sharp drop on Tuesday. Amid the buyout deal by e-commerce juggernaut Amazon (NASDAQ:AMZN), which sparked regulatory antitrust fervor, iRobot entered into an unfavorable financing facility. To account for this move, the acquisition price was adjusted downward, trimming 12% of the market value off IRBT stock.
According to iRobot’s press release, under the amended terms, Amazon will pay $51.75 per share of IRBT stock. Previously, the agreement called for $61 per share. Catalyzing the adjustment was iRobot entering into a $200 million financing facility to fund its ongoing operations. Because of the planned increase of iRobot’s net debt, the downward price adjustment largely offsets the impact on Amazon.
“We’ve reached an amended agreement with Amazon that reflects the incurrence of iRobot’s new debt,” said in part Colin Angle, Chairman and CEO of iRobot. Notably, Angle mentioned that the new financing may sufficiently support its operations in “a hyper competitive environment.”
As Fortune pointed out in 2020, cleaning robot sales soared during the worst of the Covid-19 pandemic. Essentially, consumers looked for easy ways to keep their homes tidy. However, the subsequent rise in competition pressured IRBT stock, which peaked in early 2021.
Bad Deals and Regulatory Woes Hamper IRBT Stock
Given the troubled ecosystem of the vacuum robotics sector, iRobot had to do what it could to keep running. Unfortunately, investors took a dim view of the financing facility. As well, speculators of IRBT stock must be cognizant of regulatory risks associated with antitrust oversight.
According to Bloomberg, the financing arrangement represents a senior secured loan. Moreover, asset management firm Carlyle Group (NASDAQ:CG) – under its private credit arm – provided the loan, which carries a lofty floating interest rate that currently lands at approximately 14%. It also imposes onerous terms on iRobot.
Per the news agency, “…if the company pays back a portion or all of the loan early, it’s required to pay Carlyle a penalty.” Therefore, the price downgrade for IRBT stock accounts for this unfavorable arrangement.
However, the Amazon buyout of iRobot isn’t out of the woods. Since Amazon announced the transaction last August, the Federal Trade Commission and European regulators have closely scrutinized the deal. As Bloomberg mentioned, “Amazon’s price cut is the latest example of how tougher US regulatory reviews are impacting dealmaking.”
Why It Matters
Last month, IRBT stock popped higher as the U.K.’s Competition and Markets Authority (CMA) gave a nod of approval to Amazon for its then $1.7 billion acquisition proposal for IRBT stock. However, European Union regulators are not so generous, setting a Nov. 15 deadline to vet the potential impact of the buyout deal, sparking a backlash from privacy activists.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
