In a significant development, Amazon and iRobot have decided to terminate their proposed $1.4 billion merger following opposition from EU and US antitrust regulators. The decision comes after EU antitrust chief Margrethe Vestager expressed concerns that the acquisition would enable Amazon to foreclose iRobot's rivals by restricting or degrading access to Amazon stores.
After an in-depth investigation as to whether Amazon's acquisition of iRobot may (i) restrict competition in the market for the manufacturing and supply of robot vacuum cleaners (RVCs); and (ii) allow Amazon to strengthen its position in the market for online marketplace services to third-party sellers (and related advertising services) and/or other data-related markets the Commission had concluded that that Amazon may restrict competition in the European Economic Area (‘EEA')-wide and/or national markets for RVCs, by hampering rival RVC suppliers' ability to effectively compete.
Most of the concerns were due to Amazon’s position as the dominant platform provider for retail e-commerce. Drawing on the fact that Amazon platform is currently one of the biggest markets for RVCs in Eurozone, the Commission said that Amazon can effectively foreclose the market by (i) delisting rival RVCs; (ii) reducing visibility of rival RVCs in both non-paid (i.e., organic) and paid results (i.e., advertisements) displayed in Amazon's marketplace; (iii) limiting access to certain widgets (e.g. ‘other products you may like') or certain commercially-attractive product labels (e.g. ‘Amazon's choice' or ‘Works With Alexa'); and/or (iv) directly or indirectly raising the costs of iRobot's rivals to advertise and sell their RVCs on Amazon's marketplace.
The Commission articulated that Amazon will also have incentive to tilt the platform in favor iRobot because it will be economically profitable and reasonable to do so. The merged entity would likely gain more from additional sales of iRobot RVCs, than it would lose from fewer sales of iRobot's rivals and other related products on Amazon. Such gains include benefits from additional data gathered from iRobot's users.
The Commission had relied on internal documents provided by the parties and gathered views from market participants such as suppliers of RVCs and other smart home devices, as well as from providers of online sales channels and concluded that the proposed merger could restrict competition in the market for RVCs, leading to higher prices, lower quality, and less innovation for consumers.
In the face of the challenge by the Commission, Amazon and iRobot have abandoned their $1.4 billion merger plan. The Federal Trade Commission (FTC) in the US was also set to reject the deal, planning to recommend a legal challenge to block the acquisition before the companies officially abandoned it.
This is remarkable as being indicative of tougher position that EU is set to take after the adoption of Digital Markets Act following which the Commission initially proposed designation of 6 companies including Amazon as gatekeepers.