When shares of iRobot (IRBT) plunged last week on the news Amazon (AMZN) had chosen not to offer concessions to European regulators to address antitrust concerns, I wondered aloud whether Amazon actually wanted to acquire the Roomba maker in the first place.

In particular, I noted while there was still a potential merger-arbitrage opportunity should the deal go through at the agreed purchase price of $51.75 per share, I also warned (on Jan. 12) that “buying and holding [iRobot] stock now runs the risk that shares plunge again if the acquisition officially falls apart.”

That’s exactly what happened on Friday, when iRobot plummeted nearly 30% on news that Amazon had been informed the European Commission intends to block the deal. Shares of iRobot closed the week at $17.26 — or just over a third of its $46 pre-acquisition price when the deal was announced in July 2022.

That raises the question: What happens to iRobot if its acquisition by Amazon fails?

A few things immediately come to mind:

iRobot will receive a juicy breakup fee

First, per the terms of the original merger agreement, iRobot will receive a $94 million termination fee in the event regulators block the merger.

No big deal for Amazon, considering the $1.6 trillion (with a “t”) e-commerce behemoth generated net income of $9.9 billion (with a “b”) last quarter alone.

But that’s a huge deal for iRobot, which now boasts an enterprise value of just over $500 million (far below the implied $1.7 billion acquisition price). iRobot ended last quarter with $190 million in cash and $238 million in debt on its balance sheet. The majority of that debt is under a term loan that matures in July 2026, which iRobot took out to help pay down existing debt and fund ongoing operations as it awaited the deal’s closing.

iRobot may re-ramp sales & marketing, R&D

Since the acquisition has closed, iRobot has reduced its sales & marketing spend by more than 40% and — as sales have declined commensurately — modestly reduced its R&D spending as well.

That made sense as it awaited the takeover by its well-funded e-commerce juggernaut overlord. But now the company will need to seriously consider its future as a standalone business — that is unless…

iRobot could seek another suitor

If the acquisition is officially blocked and Amazon/iRobot choose not to appeal the decision, iRobot could actively pursue strategic alternatives with another prospective suitor.

I argued years ago, for example, Alphabet (GOOG, GOOGL) could do well to take iRobot under its wing — even if it subjected the parent company of Google to similar antitrust scrutiny. Recall Google acquired Nest for $3.2 billion in 2014 to further its own smart-home ambitions; iRobot’s products and enviable trove of robotic navigation/home-mapping patents would be a solid complement to the Nest portfolio.

• iRobot’s current share price seems to imply the market not only believes its acquisition by Amazon is doomed to failure, but also that iRobot will be left scrambling to define its future — whether that means courting other prospective acquirers, or organically returning to sustained profitable growth on its own.
  
  As a shareholder of iRobot for more than a decade leading up to its acquisition, I personally think iRobot will be fine regardless of which of the three aforementioned scenarios plays out. As such, I’ve opted to officially re-open a small position in iRobot at these levels in the recently launched BLI Premium Portfolio.

• The window for Virgin Galactic’s first commercial spaceflight of 2024 opens this coming Friday, Jan. 26. Dubbed “Galactic 06,” the flight will carrow four private astronauts to the edge of space. I’ll be hosting a livestream on YouTube following the event with my friend and colleague, Travis Hoium of the Asymmetric Investing newsletter, so stay tuned for more!

• On the startups front, BLI Watchlist constituent Future Cardia is hosting an investor webinar this Thursday, Jan. 25, 2024 to detail its 2023 milestones and objectives for 2024. I’ll be sure to follow up with a recap of the event here at BLI, but feel free to tune in if you’re considering whether to add this health care disruptor to your portfolio.

• By popular demand, we officially launched BLI Premium this week! For only $100/year (that’s $8.33/month), you can upgrade to gain access to our interactive BLI Premium Portfolio, trade alerts, exclusive interviews and more.