ICYMI: Experts criticize the politicized intention of the European Commission’s intent to block the Amazon-iRobot deal, which jeopardized iRobot’s viability
On January 29, Amazon and iRobot announced an agreement to terminate Amazon’s acquisition following a report by the Wall Street Journal that the EU Commission (EC) intended to block the deal. As a result, Massachusetts-based iRobot announced it planned to fire 31% of its employees, reduce its investment in R&D, and cancel innovation in new product lines such as air filters and lawn mowers. The FTC’s reaction to the job losses at iRobot was to issue a statement saying that it was “pleased” the merger had failed.
Here’s what you need to know:
— Amazon doesn’t make robotic vacuums, and the EC’s intent to block the deal is a case of “prioritizing political interests over consumer welfare.”
— The EC’s actions threaten the financial viability of iRobot, which was already struggling in regulatory purgatory while it waited for the outcome of the EC’s investigation.
— Blocking this transaction is only killing innovation and disincentivizing investment in innovative small- and medium-sized businesses.
— The only winners from the EC’s decision are Chinese companies that have already taken over the robotic home products sector.
Amazon doesn’t make robotic vacuums, and the EC’s intent to block the deal is a case of “prioritizing political interests over consumer welfare.”
— Geoffrey Manne, president & founder of the International Center for Law & Economics reminds us that the majority of sales on Amazon come from third-party sellers, and assumptions about iRobot promotion does not amount to an antitrust case—it only offers the potential for greater consumer satisfaction. “The article says the basis for blocking would be the possibility that AMZ “might” limit or foreclose competitors from selling on http://amazon.com. Really? Something like 60% of sales on Amazon are by sellers other than Amazon. Amazon has no incentive to foreclose others’ sales — sales by others is Amazon’s raison d’être! To be clear: It’s not that Amazon has a competing product it might remove from the market, or that it was [poised] to enter. The argument is a (hypothetical, future) self-preferencing claim. Self-preferencing claims are just bad economics (and law). Would AMZ promote its robot vacs if it buys iRobot? Sure. Much to the benefit of consumers. Maybe Prime members will get a discount. The horror!”
— The Software & Information Industry Association’s Morten Skroejer calls out the Commission’s false application of competition principles to its decision. “We are deeply concerned by the way that the Commission is applying its competition principles, which has implications well beyond the context of this particular case. Here, Amazon does not own a competing brand of robot vacuum cleaners. Rather, the point of the deal was to provide iRobot a much needed capital infusion to allow it to better compete with its closest competitors. This rubric could be applied to block almost any kind of productive activity across the business of information.”
— Truth on the Market’s Alden Abbott says, “there is no sound justification for preventing this merger.” “Amazon’s acquisition of iRobot would likely promote efficiencies, raise welfare, and enhance competition. There is no sound justification for preventing this merger. Attempting to do so would not only harmfully undermine innovation in a highly competitive market, but would have broader ramifications, as well. It would dissuade large companies from contemplating welfare-creating complementary acquisitions, to the detriment of innovative welfare enhancement in a large number of markets. It would, once again, single out without justification a highly successful American digital platform, which, with its fellow U.S. platforms, has generated enormous welfare gains for consumers.”
The EC’s actions threaten the financial viability of iRobot, which was already struggling in regulatory purgatory while it waited for the outcome of the EC’s investigation.
— Tom Hebert from Americans for Tax Reform writes in the Washington Examiner: “iRobot will likely die a slow death thanks to European regulators and left-wing politicians who enable their malfeasance toward American companies. There are three takeaways from this debacle. First, regulators can kill a company simply by dragging the approval process out. While trillion-dollar companies like Amazon can easily afford to pay the cost of these delays, they often stretch smaller companies to their breaking point. iRobot was forced to take out a $200 million loan just to scrape through the review process. While Amazon’s $94 million termination fee will defray some of these costs, iRobot is on the hook for the rest.”
— Bloomberg reported that iRobot has blamed “increased pricing competition” for dragging on sales. It held layoffs in 2022 and 2023, subleased part of its headquarters and scaled back advertising and research and development. The company has incurred about $500 million in losses since 2021.”
— Bloomberg reported that, while iRobot was waiting for regulatory clearance, it had to take out a loan that was excessively expensive. “Since Amazon said it would buy iRobot last August, the company has suffered from falling orders for its Roomba vacuums and watched its cash on hand dwindle. Amazon’s deep pockets would solve these liquidity needs, but the acquisition is still far off and uncertain as US and European regulators scrutinize the deal. That left iRobot in a lurch. Carlyle lent iRobot $200 million through its private credit arm … That places the annual interest rate at a little over 14%, which will increase if the Fed keeps raising rates.”
— Reuters reported after the collapse of the deal that iRobot is in a “debt straightjacket,” noting that “deal’s demise in the hands of European antitrust regulators left it confronting plunging revenue and soaring losses.” “Regulatory filings shed light on how the terms of the Carlyle loan that iRobot accepted last July to tide itself over during the deal’s regulatory review are weighing on its finances and have added to the pressure to cut costs.”
Blocking this transaction is only killing innovation and disincentivizing investment in innovative small- and medium-sized businesses.
— Matt Schruers, President of the Computer & Communications Industry Association clarifies that, “If the objective is to have more competition in the home robotics sector, this makes no sense.” “There is no plausible risk to competition from a U.S. retailer acquiring a struggling U.S. vacuum maker in a sector overtaken by dynamic Chinese manufacturers. Blocking this deal may well leave consumers with fewer options, and regulators cannot sweep that fact under the rug.”
— The App Association’s Morgan Reed points out that, “restrictions on companies being acquired dim opportunities for our members. This possible limitation becomes a barrier to exit, and for our members, a barrier to acquisition equates to a barrier to entry.” “Our members look to acquisitions as a key part of building their future. The EC’s decision does nothing to help small companies for whom joining another company is a way to grow the product they have poured their lives into, or to give back to the families that have taken risks and supported them for years. A barrier to exit is a barrier to entry. If entrepreneurs, like our members, in the EU or anywhere else across the world can’t get acquired, they have a much harder time getting funding in the first place.”
The only winners from the EC’s decision are Chinese companies that have already taken over the robotic home products sector.
— The WSJ Editorial Board noted that Senator Warren had called for the deal to be abandoned, but this likely resulted in job losses for her constituents and benefits to Chinese firms. “It’s hard to see who benefits from the deal’s collapse besides Beijing, which aims to dominate robotics and mass-produce humanoid robots by 2025. The iRobot rivals progressives are worried about are Chinese firms … The Biden Administration is subsidizing semiconductor and green-energy companies in the name of competing with China, even as antitrust regulators make it harder for U.S. companies to compete. Call it degenerative artificial government intelligence.”
— “iRobot is burning through COH and loading up on debt to stay afloat as it waits for regulators to approve its sale. Chinese vacuum companies will be the real winners if this deal is blocked,” points out Tom Hebert of the Americans for Tax Reform and the Open Competition Center.
— Hebert also reported that a newly laid off iRobot employee pleaded the following: “Sen. Warren, why did you encourage regulators to kill the Amazon/iRobot deal? The death of this company – headquartered in your home state – will only bolster iRobot’s Chinese competitors.”
— Chinese companies are booming. According to Statista, iRobot’s global category share shrank from 64% in 2016 to 46% in 2020, while the Chinese Ecovacs category share increased from 7% in 2014 to 17% in 2020.
— In its most recent review of robotic vacuums, the NYT Wirecutter recommended against iRobot in favor of two Chinese companies. “In our most recent testing, we tried 13 models, from cheap, aimless bumblers to sophisticated machines that (usually) navigate with ease. We think that the Roborock Q5 (and the Roborock Q5+, with its self-emptying dock) and the Eufy RoboVac 11S Max are your best choices.”