IRobot Made False Statements About Amazon Merger Risks, Alleges Class Action

IRobot’s representations to investors about the probability of regulatory approval of its purchase by Amazon and the “adequacy” of the company’s internal controls “were far from reality,” alleged a Securities Exchange Act class action Saturday (docket 1:24-cv-11498) in U.S. District Court for Massachusetts in Boston.

Anthony Wren, derivatively on behalf of iRobot, filed suit against founder and former CEO Colin Angle, Chief Financial Officer Julie Zeiler, Chairman Andrew Miller, former director Deborah Ellinger and current directors Mohamad Ali, Karen Golz, Eva Manolis and Michelle Stacy.

On Aug. 5, 2022, iRobot announced it entered into a definitive merger agreement with Amazon, under which Amazon would acquire the robot vacuum cleaner (RVC) company in an all-cash private transaction at $61 per share, or approximately $1.7 billion, including iRobot’s net debt, said the complaint. Under the deal, iRobot would become a wholly owned Amazon subsidiary, and Angle would remain CEO, it said.

IRobot filed several proxy materials with the SEC throughout the relevant period -- Aug. 5, 2022-Jan. 29, 2024 -- maintaining that there was a “high probability” the merger would “withstand regulatory antitrust scrutiny and would ultimately be approved for clearance” by relevant governmental authorities such as the FTC and the European Commission (EC), said the complaint.

Unbeknownst to iRobot’s shareholders, who approved the merger, the individual defendants’ representations about those approvals were not accurate, and domestic and international antitrust regulatory entities, including the FTC and the EC, “identified approvability issues during clearance reviews and were quite concerned about Amazon’s dominant position in the smart home RVC market,” said the complaint.

By making a series of “materially false and misleading statements regarding the success of completing the Merger,” the defendants “successfully deceived iRobot shareholders into approving it, said the complaint. The truth remained “hidden for more than a year until news reports began exposing, in detail, the true extent of the regulatory hurdles” the merger faced, it alleged.

On June 22, news outlets reported that the EC planned to launch an investigation into the deal, and on that news, the stock price fell 8.2% to close at $45.41 that day, the complaint said. Five months later, the EC revealed it had informed Amazon that its preliminary view of the proposed acquisition of iRobot “may restrict competition in markets for [RVCs],” the complaint said. The EC expressed its concern “that Amazon may restrict competition in the European Economic Area,” for RVCs “by hampering rival RVC suppliers’ ability to effectively compete,” it said.

Politico reported Jan. 10 that Amazon didn't alleviate the EC’s concerns about the merger by not providing concessions as the agency had requested, said the complaint. The Wall Street Journal and Bloomberg reported Jan. 18 that the EC planned to block the transaction, and on Jan. 19 Bloomberg reported the FTC was preparing a suit to block it, the complaint said. The stock price fell 27% that day, closing at $17.26 per share, it said.

The companies announced Jan. 29 they were terminating the deal, and Angle “abruptly resigned” from the CEO position he had held for 27 years, the complaint said. The company announced it would lay off 350 employees, about a third of its workforce, it said.

Defendants Angle, Ali, Ellinger, Golz, Manolis, Miller and Stacy caused the 2023 proxy statement “to be false and misleading” by failing to disclose that the acquisition would render Amazon a dominant player in the RVC market, causing federal and international antitrust regulators to scrutinize the acquisition, the complaint alleged. Their due diligence in reviewing the agreement was “wholly insufficient" and ignored significant risks; statements concerning the likelihood of closing the deal “were significantly overstated,” it said.

Each defendant owed to iRobot and shareholders “the highest fiduciary duties of loyalty, good faith, and the exercise of due care and diligence” in managing company affairs, plus the use and preservation of its property and assets, said the complaint. They had a duty “to prevent and not to effect the dissemination of inaccurate and untruthful information with respect to the Company’s financial condition, performance, growth, operations, financial statements, business, products, management, earnings, internal controls, and present and future business prospects,” it said.

The defendants had a duty to disclose in regulatory filings with the SEC all the facts described in the complaint “that it failed to disclose, so that the market price of the Company’s common stock would be based upon truthful and accurate information,” alleged the complaint. The individual defendants “aided and abetted and assisted each other in breaching their respective duties,” it said.

In addition to statutory violations, Wren claims breach of fiduciary duties, unjust enrichment, waste of corporate assets, gross mismanagement and abuse of control. He demands judgment that the defendants breached their fiduciary duties; an award of damages with pre- and post-judgment interest; an order directing the individual directors to reform and improve iRobot’s corporate governance and internal procedures to comply with applicable laws; a provision to allow shareholders to nominate at least four candidates for election to the board; restitution; and attorneys’ fees and costs.