Amazon and iRobot Abandon $1.4 bn Deal Amidst EU Antitrust Opposition

Amazon and iRobot declared the termination of their $1.4 billion deal, succumbing to resistance from European Union (EU) antitrust regulators. The decision comes as a setback to Amazon’s ambitions to expand its portfolio of smart home devices.
iRobot for homes
Global shipments of smart home devices in the first quarter of 2023 fell 5.6 percent year over year to 186 million units, according to IDC Worldwide Quarterly Smart Home Device Tracker. IDC expects the smart home devices market to decline by 1.8 percent in 2023. IDC expects the smart home devices market will return to growth in 2024 and continue through 2027 with device volumes reaching 1.1 billion shipments in 2027.

iRobot, renowned for its robot vacuum products, concurrently revealed a substantial restructuring initiative aimed at cost reduction. The company disclosed plans to slash approximately 31 percent of its workforce, equating to 350 jobs. Alongside this workforce reduction, iRobot’s founder, Colin Angle, has stepped down from his role as CEO, citing the need for a leader with turnaround expertise in the face of current challenges.

The company’s strategic shift comes as a response to the regulatory obstacles and the evolving landscape of the consumer robotics industry.

Amazon, the world’s largest online retailer, acknowledged that its $1.4 billion acquisition bid for iRobot faced insurmountable hurdles in gaining regulatory approval from the European Union. Earlier reports from Reuters had indicated that the European Commission’s antitrust regulators were poised to block the deal, expressing concerns that Amazon could stifle iRobot’s competitors, particularly in France, Germany, Italy, and Spain.

The proposed acquisition, announced by Amazon in August 2022, aimed to bolster the company’s presence in the smart home devices market and further expand its virtual healthcare initiatives, already featuring products such as Alexa and Ring.

David Zapolsky, Amazon’s general counsel, expressed disappointment at the development, stating, “We’re believers in the future of consumer robotics in the home and have always been fans of iRobot’s products.”

As a consequence of the abandoned merger, iRobot anticipates a significant impact on its financials for the full year 2023. The company projects a 25 percent reduction in revenue, amounting to $891 million, along with a projected loss ranging between $265 million and $285 million. Pursuant to the terms of the terminated merger agreement, Amazon will compensate iRobot with a $94 million termination fee.

Amazon, no stranger to regulatory scrutiny, has faced challenges in recent years, with ongoing legal disputes, including a protracted court battle with the Federal Trade Commission (FTC) over alleged illegal strategies employed to enhance profits within its online retail empire.

EU Antitrust Regulators Outline Concerns Over Amazon-iRobot Merger

In a detailed explanation released earlier, the European Union (EU) has clarified the grounds for its decision to block the proposed merger between Amazon and iRobot, expressing concerns over potential anti-competitive practices.

EU antitrust regulators pointed to Amazon’s perceived ability and incentive to undermine iRobot’s rivals through various foreclosing strategies, all geared towards impeding competitors from selling Robot Vacuum Cleaners (RVCs) on Amazon’s online marketplace or hindering their access to it. These strategies include:

Delisting Rival RVCs: The removal of competing RVCs from Amazon’s online marketplace.

Reducing Visibility: Diminishing the prominence of rival RVCs in both organic and paid results displayed on Amazon’s marketplace, including advertisements.

Limiting Access: Restricting access to certain widgets (e.g., ‘other products you may like’) or commercially-attractive product labels (e.g., ‘Amazon’s choice’ or ‘Works With Alexa’).

Raising Costs: Directly or indirectly increasing the costs for iRobot’s rivals to advertise and sell their RVCs on Amazon’s marketplace.

Amazon’s perceived influence in the online marketplace, particularly in France, Germany, Italy, and Spain, where RVC customers heavily rely on the platform for product discovery and final purchasing decisions, has raised concerns among regulators. The EU contends that Amazon’s potential to foreclose iRobot’s rivals could stifle competition in the market for RVCs, leading to adverse effects such as higher prices, lower product quality, and diminished innovation for consumers.

The incentive for Amazon to pursue these foreclosing strategies is identified as potentially economically profitable, as the merged entity would likely benefit more from increased sales of iRobot RVCs than it would lose from reduced sales of iRobot’s rivals and related products on Amazon. This anticipated gain includes benefits derived from additional data gathered from iRobot’s user base.

The EU’s objection to the merger underscores the importance of maintaining a competitive landscape in the market for Robot Vacuum Cleaners, prioritizing consumer welfare and preventing potential anti-competitive practices that could harm market dynamics. The decision to block the deal aligns with the EU’s commitment to fostering fair competition and innovation within the European marketplace.

Baburajan Kizhakedath

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