Short Seller Does Victory Lap After Amazon Deal Dies — What Happened To iRobot?

Shares of iRobot Corporation IRBT fell over 16% on Monday after the company's highly anticipated $1.7 billion merger deal with Amazon.com, Inc. AMZN fell apart, taking its stock below 52-week lows.

Shares in the company recovered during Monday afternoon, to reach a 7% daily drop at the time of this writing. The company, however, added over 59% in losses during the past month in anticipation of a decision by the European Commission on the deal's viability.

While Amazon is compensating the robot vacuum company with a $94 million termination fee for backing out of the deal, the bad news is causing the company to enter a restructuring phase.

iRobot said it plans to lay off around 350 employees (about 30% of its workforce), while its co-founder Colin Angle resigned as CEO, leaving command to current executive vice president and chief legal officer Glen Weinstein, who will oversee the restructuring as interim CEO.

The high-profile deal, which was first announced in August 2022, raised the attention of the U.K.'s antitrust watchdog in April of last year, yet it wasn't until the European Union's antitrust regulators opened a full investigation into the deal in June 2023 that the company's shares started on their most recent downward trajectory.

Did A Short Seller Really See It Coming? Short seller Spruce Point Capital, which is led by manager Ben Axler, took to X to boast its long-standing bearish position on iRobot.

"Sad day for $IRBT. Wasn’t there a short activist that constantly warned about that company? I bet that guy’s twitter feed is blowing up kudos and apologies from all the trolls over the years," Spruce Point Capital said jokingly on X.

The firm has had a short position in iRobot since 2017 when it warned that rising competition from Sharkninja Inc SN was at the time a threat to iRobot's bottom line.

In 2019, Spruce Point issued another short report, arguing iRobot had been "covering up weakening fundamentals and growth prospects, questionable reliability and accuracy of the financial guidance."

In 2020, the firm issued a report warning against investing in the company, saying that investor enthusiasm was rooted in speculation around the growing robotics market. 

"We note that much of the hype came from Amazon.com, Inc. and Google Inc [Alphabet Inc] GOOGL GOOG's announcements of investments in drones and robotics," wrote the firm, years before Amazon's acquisition of iRobot was announced.

"However, we observe that the actual size of the investments have been small, and in areas unrelated to iRobot's core competencies," it concluded at the time.

The tides turned for iRobot after Amazon confirmed its $1.7 billion merger, which could have been interpreted as proof against Spruce Point's long-sustained short position in the company.

Why The Deal Went Down: For the European Commission leading the probe, the deal threatened to hurt competition in the vacuum industry. Other vacuum cleaner manufacturers who also rely on Amazon for sales could have suffered from anti-competitive practices from the big retail giant, potentially hurting sales in France, Germany, Italy and Spain.

Both companies announced that there was "no path to regulatory approval in the European Union."

The shake-up coming from the deal's unviability is causing iRobot to pause the development of products outside its vacuum business, while also closing offices and facilities in underperforming markets.

What It Means For The Tech Giant: Amazon was up 1% on Monday at the time of this writing, yet the news could impact the company's prospects for future acquisitions if investors take this event as a precedent for other attempts to expand into new product lines.

Amazon is currently under siege by the Federal Trade Commission, along with 17 states which are accusing it of using its unmatched reach to exercise a monopoly on online retail, in an antitrust lawsuit that could seriously impact the company's future.

Photo: Shutterstock