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Why iRobot Stock Fell Today

Motley Fool - Tue Jul 25, 2023

What happened

Amazon(NASDAQ: AMZN) has cut the price it will pay to acquire iRobot(NASDAQ: IRBT) after the target entered into a new financing facility to fund operations. iRobot ivestors focused on an eventual payout reacted accordingly, sending shares of iRobot down neary 14% on Tuesday.

So what

Amazon agreed to acquire iRobot last summer, offering $61 per share in cash, or about $1.7 billion, for the Roomba maker. The deal looked like a bargain at the time: The buyout price was about 75% below iRobot's all-time high.

Alas, the deal has progressed slower than the companies had hoped, with the U.S. Federal Trade Commission and European regulators examining the antitrust implications. On Tuesday, iRobot announced it has entered a new $200 million financing facility to fund ongoing operations.

For corporate acquirers, debt matters. Amazon in effect is seeing its total price paid for iRobot increase by $200 million because when a deal closes, Amazon will have to assume that debt.

With that in mind, Amazon lowered its offer price to $51.75 per share, a figure that the companies say would largely offset the planned increase in iRobot debt.

Now what

iRobot CEO Colin Angle said in a press release that the company believes the new financing "is sufficient to support our operations in a hyper-competitive environment and meet our liquidity needs."

The retail economy is in a much different place today from when the deal was announced, but Amazon still appears to see value in acquiring iRobot and obtaining the robotics expertise that the brand is known for. iRobot investors will be disappointed by the price cut, but given that hypercompetitive environment that Angle mentions and iRobot's need to secure debt to fund operations, a buyout still appears the best possible outcome for iRobot shareholders.

Tuesday's price decline is a tough pill to swallow, but for investors it is likely much better than what would happen should Amazon instead try to walk away.

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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. Lou Whiteman has positions in Amazon.com. The Motley Fool has positions in and recommends Amazon.com and iRobot. The Motley Fool has a disclosure policy.

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