iRobot shares tumbled after Amazon.com Inc. said it’s paying less to acquire the Roomba maker iRobot to account for fresh financing taken out by the company as an amazon iRobot merger deal review drags on.
iRobot’s shares plunged 13.7% on Tuesday after Amazon (AMZN) said it would lower its purchase price of the Roomba maker iRobot. The Amazon iRobot deal where the tech giant bought it for $1.7 billion last August in an effort to expand its offerings of smart devices.
Amazon iRobot deal
Under the revised agreement, Amazon will pay $51.75 per iRobot share, down from the initial price of $61 per iRobot share agreed upon last year. The lower price reflects higher iRobot’s debt burden since the deal was first announced.
The Seattle based e-commerce giant said it will now pay $51.75 per IRobot share, or 15% less than its original offer.
Roomba maker iRobot has entered into a $200 million financing facility to fund its ongoing operations, the companies said in a statement. The borrowing will boost iRobot’s debt burden, necessitating a lower price.
iRobot debt burden
For Amazon, the lower per share payment will likely be offset by the planned increase in iRobot’s debt under the new facility.
The senior secured term loan, provided by the private credit arm of Carlyle Group Inc., carries a lofty floating interest rate that currently comes to about 14% and imposes onerous terms on Roomba maker iRobot. For example, if the company pays back a portion or all of the loan early, it’s required to pay Carlyle a penalty.
“We’ve reached an amended agreement with Amazon that reflects the incurrence of iRobot’s new debt,” said Colin Angle, the company’s chair and CEO. “iRobot is taking on new financing that we believe is sufficient to support our operations in a hyper-competitive environment and meet our liquidity needs.”
Amazon executives said they were willing to offer financial support.
“We are pleased to support iRobot in this way so they can continue inventing and delivering for customers while our proposed acquisition awaits regulatory approval,” said Dave Limp, senior vice president of Amazon Devices.
iRobot’s sales
The iRobot’s sales surged during the pandemic as housebound families looked for faster ways to clean their residences. But demand for iRobot’s products has since waned and iRobot sales have decreased. Meanwhile, rivals have been rolling out their own robot cleaning machines, prompting the company to file patent infringement lawsuits.
In May, iRobot reported sales and earnings per share that missed estimates. As of April 1, the company’s cash and cash equivalents were $47.9 million, compared with $117.9 million at the end of 2022. During the quarter, iRobot drew $27 million from its credit facility.
“iRobot is taking on new financing that we believe is sufficient to support our operations in a hyper competitive environment and meet our liquidity needs as well as pay off iRobot’s existing debt,” iRobot Chief Executive Officer Colin Angle said in a statement.
The FTC probe
Amazon iRobot deal was announced last August, the Federal Trade Commission and European regulators have been probing the deal. Amazon’s price cut is the latest example of how tougher U.S. regulatory reviews are impacting deal making. Earlier this year, Intercontinental Exchange Inc. cut the price it was paying to buy Black Knight Inc. after agreeing to divest a unit due to antitrust concerns.
European regulators set a deadline of Nov. 15 to vet the potential impact of the Amazon iRobot deal, which has sparked a backlash from privacy activists.
The acquisition is still pending regulatory approval. It’s faced antitrust scrutiny in Europe, where regulators have challenged the deal on grounds that it could further entrench Amazon’s dominant position as an online marketplace provider. A decision by the European Commission is expected on December 13.
Stock update
Amazon shares were flat in afternoon trading Tuesday, while those of iRobot plunged close to 14%. Shares of Amazon are up more than 50% year-to-date, amid a broader rally in big tech stocks, while those of iRobot are down 3%. IRobot shares fell about 11% in New York, while Amazon was down slightly.
