Shares in cleaning robot maker iRobot (NASDAQ:IRBT) fell by nearly half after the European Commission said it intends to block its acquisition by Amazon (NASDAQ:AMZN).
The refusal raised the specter of bankruptcy for iRobot. That fear also engulfed Spirit Airlines (NASDAQ:SAVE) after its merger with JetBlue (NASDAQ:JBLU) was rejected in the U.S.
IRBT stock, which had been trading at $27.60 early on Jan. 18, opened this morning at about $16.94. That’s a market capitalization of just $465 million.
Amazon was reportedly told of the rejection at a meeting with EU regulators on Jan. 18.
No Robot for You
Today’s iRobot was founded back in 1990 by three MIT engineers. It was considered one of the first “artificial intelligence” (AI) plays. The Roomba cleaning robots, first launched in 2002, can avoid obstructions and even recharge themselves.
However, the company found its sales ceiling during the Covid-19 pandemic. Since 2020, revenue has been off by about 40%, and losses have ballooned.
The Amazon deal, announced last August, was something of a bailout. The price then was $1.7 billion, $61 per share, later reduced to $51.75. As recently as a month ago, the deal was expected to sail through.
The rejection signals a new hard-line by regulators against mergers, but it looks bad for business. “Blocking this deal may well leave consumers with fewer options,” said Matt Schruers, president of the Computer and Communications Industry Association (CCIA) tech lobby.
For Amazon, the rejection may be a favor. The Roomba was seen as a line extension for its Nest, Ring and Alexa lines. But the company has recently cut employment in those areas.
For iRobot, the rejection is a disaster. The company has been aggressively cutting prices to move merchandise and may find a new partner hard to come by.
IRBT Stock: What Happens Now?
There remains hope among Stocktwits commenters that iRobot stock can launch a comeback. But it’s another reminder to investors that a merger announcement does not make a merger.
As of this writing, Dana Blankenhorn had a LONG position in AMZN. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
