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Funny you should ask, I opened a small position yesterday at $6.75 along these lines.

risk for this acquisition.
1. Difficult for GOOGLE to raise cash. That is very rare, it has a lot more than the 2.1 B in cash waiting to be used and also it generates aprox 32b in earning every year.

Make that $121 billion is cash - this is a non-issue for Google.

2. Fitbit stockholder do not approve the sale. If the sale does not happens Fit will go back to trade below 5 per stock and the company is not profitable. Everyone is willing to be acquiered by google.

It is shareholders that have to approve this deal, and they couldn’t care less who is doing the buying. The only relevant issue is the price, and at $7.35 a share instead of the pre-deal of just over $4, there can be no serious doubt about approval, unless there is a better offer (which just makes an arbitrage position more attractive.)

3. Regulatory approvals. This is the big IF. But if you look at the "wearables category" FIT was not a mayor player and APPLE has clearly a bigger share, FIT has less than 27mm users and is less than 10% market share. FIT customers are complaining for the use of their that if FIT is acquired by GOOG. That reinforces the "desire" to put it a little more difficult for this purchase to go thought. But considering all this issues I believe the possibility to not be approved is low.

I agree this is the only real question. But antitrust authorities only have to decide whether this deal would hinder competition, not whether Fitbit owners like it or not. The deal arguably increases competition against the dominant player (Apple), so I doubt this will be a

The other relevant point is that there is a breakup fee: Fitbit shareholders get $250 million from Google if the deal doesn’t go through, which is about $1.10 per share, which decreases the downside a bit. My guess is that shares would fall back to about $5.20, or down $1.50 from here, if the deal fails, and obviously the upside is about $0.65 (barring the unlikely event of a sweeter offer.) If you’re like me and expect a 90% chance of the deal going through, that means your expected return is 90%*0.65+10%*(-1.50)=.43 per share, or about a 6.4% in 6-9 months, still pretty good.

Regards, DT
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