iRobot Stock Jumps, Then Slumps: What’s Going On?

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On Friday, iRobot (NASDAQ:IRBT) stock zoomed 39% higher; on Monday, it dropped 17%. This isn’t a penny stock, nor is it a stock that typically makes double-digit percentage moves. Clearly, there’s something major going on with iRobot.

Headquartered in Massachusetts, iRobot is mainly known for selling the Roomba robotic vacuum cleaner. It’s not a micro-cap company, by any means, but iRobot generally doesn’t trend on financial social media.

iRobot is definitely trending now though. The catalyst is a buyout proposal announcement from an e-commerce giant that you surely know well. However, there’s another news item that doesn’t seem to bode well for iRobot.

Which company wants to vacuum up iRobot?

Amazon (NASDAQ:AMZN) may have started out as an online bookseller, but the company now has financial interests in cloud computing, grocery delivery, healthcare and other market sectors. Did you ever imagine that Amazon would seek to buy out a robotic vacuum maker though?

In August, Amazon inked a deal to acquire iRobot for $61 per share. Of course, this wouldn’t be Amazon’s first popular device, as it already sells its Alexa voice-operated assistant and other items.

However, Amazon’s acquisition of iRobot won’t be a simple matter, since it would require the approval of antitrust regulators. The European Union could be a challenging battleground for this proposed acquisition, especially as EU regulators have stepped up their scrutiny of Big Tech businesses attempting to buy out smaller companies.

Yet, the runway seemed clear on Thursday evening when Reuters broke the story that Amazon was “set to win unconditional EU antitrust approval” for the proposed acquisition of iRobot. This news was courtesy of “three people familiar with the matter,” according to the Reuters report.

Now you know exactly why IRBT stock soared the following day. Undoubtedly, traders felt that iRobot would benefit from the exposure and access to capital that Amazon would bring to iRobot and its Roomba vacuum cleaner.

At the same time, one can only wonder whether overeager short-term stock traders actually read the full details of the news story. Reuters specified that the European Commission, which is the EU’s main regulatory entity in this case, “declined to comment.” Furthermore, Amazon “did not respond immediately to a request for comment” on the apparent “unconditional EU antitrust approval.”

This isn’t in any way meant to suggest that Reuters engaged in irresponsible reporting. Rather, it’s perhaps an instance of traders neglecting to bear an important phenomenon in mind: buy the rumor, sell the news.

Regulatory warning dampens iRobot stock rally

Sometimes not long after overeager investors pile into a trade, the market has a way of saying, “Not so fast.” This is basically what happened on Monday when the European Commission reportedly informed Amazon of the regulatory agency’s “preliminary view that its proposed acquisition of iRobot may restrict competition in the market for robot vacuum cleaners.”

Certainly, there’s a vast difference in language and tone between the supposed “unconditional EU antitrust approval” and the new “preliminary view.” While the former implies that the iRobot acquisition is a sure thing, the latter suggests a long and uncertain road ahead for Amazon and iRobot.

Thus, IRBT stock plunged 17% in a single day, putting a damper on what had seemed like an unstoppable rally on Friday. Now let’s consider how Amazon responded to the European Commission’s antitrust concerns.

As one might expect, Amazon spun the proposed buyout of iRobot as a win-win for everyone involved, including the customers.

“iRobot, which faces intense competition from other vacuum cleaner suppliers, offers practical and inventive products,” an Amazon spokesperson assured investors. “We believe Amazon can offer a company like iRobot the resources to accelerate innovation and invest in critical features while lowering prices for consumers.”

However, Amazon’s positive spin evidently wasn’t enough to quell many investors’ concerns. Moreover, the Amazon-iRobot deal is “also under review by the U.S. Federal Trade Commission,” according to CNBC.

iRobot CEO Colin Angle declared that his company is “continuing to work cooperatively with” the European Commission and “other regulators in their review.” Still, this may prove to be a protracted battle, both in the EU and the U.S., for iRobot and its investors. Consequently, buying IRBT stock now would be a risky proposition, and prospective investors should tread carefully.