What happened
Shares of robotic vacuum cleaner company iRobot (NASDAQ: IRBT) suddenly skyrocketed on Friday after some positive news broke regarding its acquisition by Amazon. As of 10:45 a.m. ET, iRobot stock is up about 20%.
So what
In August 2022, Amazon agreed to acquire iRobot for $61 per share in an all-cash deal. Nevertheless, as recently as May, iRobot stock traded as low as $31.80. In other words, the market was saying that it didn't believe the deal would happen.
Regulators appear increasingly skeptical about acquisition by tech giants, including Amazon. However, the United Kingdom's Competition and Markets Authority cleared the deal today.
All of a sudden, Amazon's acquisition of iRobot looks much more possible.
Now what
Getting the OK from the U.K. isn't the final hurdle. Regulators in the U.S. and the E.U. are still reviewing the deal. That ongoing uncertainty perhaps explains why there's still a difference of more than 20% between where iRobot stock trades now and the price that Amazon has agreed to pay.
For its part, the E.U. has said it will release its decision by July 6, which is less than three weeks away.
The timetable for a decision from U.S. regulators is less certain. And it's entirely possible the acquisition will eventually get blocked despite approval from the U.K.
For investors who like merger arbitrage ideas, iRobot stock still has over 20% upside if the deal is approved. However, investors who engage in this investing style need to consider what will happen if the deal falls through.
In iRobot's case, its revenue fell 45% year over year in the most recent quarter, and it registered a massive $81 million operating loss. Therefore, if Amazon isn't allowed to buy it, shareholders need to recognize the company is struggling, which adds an extra degree of risk to this investment.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jon Quast has positions in Amazon.com and iRobot. The Motley Fool has positions in and recommends Amazon.com and iRobot. The Motley Fool has a disclosure policy.
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