Amazon drops $1.4bn iRobot deal after EU veto threat

IRobot CEO Colin Angle has stepped down as the company embarks on a restructuring plan that will result in about 350 job cuts

European regulators said Monday, Nov. 27, 2023, that Amazon’s proposed acquisition of robot vacuum maker iRobot may harm competition. (AP Photo/Michael Sohn, File)

Amazon.com has abandoned its planned $1.4bn (€1.29bn) acquisition of Roomba maker iRobot after clashing with European Union regulators who had threatened to block the deal.

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. 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.

IRobot also 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 company’s shares fell about 16% in premarket trading in New York.

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 $94m (€87m) termination fee to be paid to iRobot, follows a similar decision recently by Adobe to walked away from a planned $20bn (€18.5m) acquisition of startup Figma 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.

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. Last year after iRobot was forced to secure a $200m (€185m) financing facility, and Amazon cut its per-share offer by about 15%.

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.

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 $500m (€462m) 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 $200m (€185m) in 2023.

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.

Though small for a company the size of Amazon, an iRobot acquisition would be 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 €1.6bn bid for Sweden’s Etraveli Group and the bloc is in the very early stages of looking into Microsoft partnership with OpenAI. In the US, the Biden administration set a record for merger challenges.

The European Commission and US Federal Trade Commission were both preparing to try to block Amazon’s takeover of iRobot, which regulators felt would unfairly compromise competition with similar appliances, people familiar with the matter had said. The UK’s Competition and Markets Authority had cleared the acquisition in June.

The EU’s 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.

Bloomberg.