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On Nov 1st 2019
SAN FRANCISCO--(BUSINESS WIRE)-- Fitbit, Inc. (NYSE: FIT) today announced that it has entered into a definitive agreement to be acquired by Google LLC for $7.35 per share in cash, valuing the company at a fully diluted equity value of approximately $2.1 billion.

“More than 12 years ago, we set an audacious company vision – to make everyone in the world healthier. Today, I’m incredibly proud of what we’ve achieved towards reaching that goal. We have built a trusted brand that supports more than 28 million active users around the globe who rely on our products to live a healthier, more active life,” said James Park, co-founder and CEO of Fitbit. “Google is an ideal partner to advance our mission. With Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster, and make health even more accessible to everyone. I could not be more excited for what lies ahead.”

"Fitbit has been a true pioneer in the industry and has created terrific products, experiences and a vibrant community of users," said Rick Osterloh, Senior Vice President, Devices & Services at Google. "We're looking forward to working with the incredible talent at Fitbit, and bringing together the best hardware, software and AI, to build wearables to help even more people around the world."

Fitbit pioneered the wearables category by delivering innovative, affordable and engaging devices and services. Being “on Fitbit” is not just about the device – it is an immersive experience from the wrist to the app, designed to help users understand and change their behavior to improve their health. Because of this unique approach, Fitbit has sold more than 100 million devices and supports an engaged global community of millions of active users, utilizing data to deliver unique personalized guidance and coaching to its users. Fitbit will continue to remain platform-agnostic across both Android and iOS.

Consumer trust is paramount to Fitbit. Strong privacy and security guidelines have been part of Fitbit’s DNA since day one, and this will not change. Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why. The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads.

The transaction is expected to close in 2020, subject to customary closing conditions, including approval by Fitbit’s stockholders and regulatory approvals.

After almost 20 days, FIT stock has gone from 7.15 to 6.72. If the closing is supposed to be done aprox. June 2020 that gives you a return of almost 9% in less than 9 months.

Lets analyze the 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.
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.
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.
Maybe I am missing something but this appear to be a good arbitrage opportunity.

I would like to get some thought from others.....
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No. of Recommendations: 5
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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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.


OK, sorry, rereading this, I realize that my correction was uncalled for, since your statement was correct. Maybe a bit of an understatement, but that' ok!
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But antitrust authorities only have to decide whether this deal would hinder competition, not whether Fitbit owners like it or not.

Is the regulator only allowed to consider the impact on competition in the product category, or can they also look at the wider impact on data? Like the largest email provider on earth that already analyses everybody's communication for advertising purposes also getting access to people's health data.

This could be seen as hindering competition, not in the product, but by gaining an (even more) dominant position in the "data" market?
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Is the regulator only allowed to consider the impact on competition in the product category, or can they also look at the wider impact on data? Like the largest email provider on earth that already analyses everybody's communication for advertising purposes also getting access to people's health data.

This could be seen as hindering competition, not in the product, but by gaining an (even more) dominant position in the "data" market?


I think this is a good point, and is probably what the market is worrying about, explaining the arbitrage opportunity.

The wording of the Clayton act is this: you can't do an acquisition where the effect "may be substantially to lessen competition, or to tend to create a monopoly."

It is true that the regulator (in this case, the FTC) can define the market narrowly or broadly. If they define it narrowly as smartwatches, then there can be no objection to the deal, since Google does not already have any meaningful share in this market, so it can't lessen competition. In fact, it should increase competition with the major player (Apple).

If they try to define it as 'health data' for instance, then I guess they have to include HMOs, drug and device companies, and Google is practically absent from this market at the moment, so the Fitbit acquisition doesn't change the competitive environment.

If they define it very broadly in the way you suggest, as the 'data' market, then Google does have a lot of data, but then, so do a lot of other companies, like Apple, Facebook, Netflix, Amazon, and even Walmart, phone companies, etc. etc. With such a broad definition, it would be hard to make the case that Google has a dominant position, even if they do have a strong position.


It would be hard to make the case that Facebook can buy Instagram and WhatsApp, or T-Mobile (#3 carrier) can acquire Sprint (#4), but Google can't acquire Fitbit, because... data??

dt
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But antitrust authorities only have to decide whether this deal would hinder competition

Not correct. Now, anti-trust officials at DOJ are signaling "data privacy" as relevant issue in evaluating mergers. Given Google's dominant position with email data, and search, this is only going to enhance their position on access to 'personal data'.

Given the investigation by various agencies, congress, some question the wisdom of "Google" to even pursue this merger. I think anti-trust approval is a significant concern is reflected in the break-up fee. A typical break up fee is 2% ~ 3% and here the break-up fee is higher than 10%. That should tell you something.
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Kingran is exactly right. It is worth a bet, BUT

do NOT count on the current stable of unstable democraps to follow any playbook you think you understand, no matter how long that playbook has succeeded.

Actually,
do NOT count on the current stable of unstable democraps to follow any playbook you think you understand, ESPECIALLY IF that playbook has succeeded for a long time.

THese unstable ninnies & their ignorant, loud-mouth apartchik are only about yelling & whining & CHANGE. And, google & fb seem to have gone from insiders of the dnc (remember how they held a company-wide meeting to cry & group-hug when whatshername got her youknowwhat kicked) to a symbol of corporate evil to the unstable far-left that is trying to destroy the democrats.

And in this case, it is completely illogical to kill this merger, but I can't say I blame both sides of the aisle for wanting to do it. I, among many, expect roughly zero health benefits from this merger. As a nearly 20 yr owner of google, I would expect economic benefits.
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do NOT count on the current stable of unstable democraps to follow any playbook

As much as I want to avoid politics, I am more worried about the WH and administration. It is pretty chaotic, volatile up there and recent AWS loss of Defense contract is an example of how Trump basically dictates every aspect of the Federal government.

As far as the concerns on big tech, I think they are pretty legit. US and world in general are behind the curve and catching up to the big tech on the legislation.
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"As much as I want to avoid politics"

Sorry, dude, you're in the wrong place. The TMF BRK board lost notable discussion of BRK a LONG time ago. It is now mostly about politics, virtue-signalling, etc. And really, why would they discuss BRK? All they need to know about BRK is ... wait for it ... WEB.

"I am more worried about the WH and administration"

Good point, but don't act like Trump exists in a vacuum.

"AWS loss of Defense contract is an example of how Trump basically dictates every aspect of the Federal government"

Wait. you have proof of the factors in the AWS loss? Do tell.

"how Trump basically dictates every aspect of the Federal government"

lmao. I guess it is all swept under the rug how Obama did that even moreso. Trump has almost nothing "under control". Trump can't even hire people who will be loyal to him. Trump is a dumpster-fire, but at least he isn't a socialist slime out to ruin the USA.

"As far as the concerns on big tech, I think they are pretty legit. US and world in general are behind the curve"

So do I, but do tell, what "curve"?
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