I thought I was finally done writing about Fitbit (FIT) in November, after the company agreed to be acquired by Alphabet (GOOGL) , with a "final" column late in the month about how the deal got gone. Not so fast. With FIT currently trading at an 11% discount to the $7.35 takeover price, some investors are wondering whether they should scoop up some FIT shares to in order to make an "easy" 11% once the deal is done, and I feel compelled to address that.
I for one will not be putting another dime into FIT in an attempt to take advantage of the current discount to the deal price. We don't know with enough certainty that this deal will get done. Now, I am not saying that it won't get done, but that the downside to the current stock price is likely far in excess of the "discount" if for some reason it does not work out.
Last week, FIT shareholders overwhelmingly voted to approve the deal, as expected. However, while a formality, I would have thought that step might have closed the discount somewhat, but it has not. So there has to be another reason (or other reasons) that the discount is not narrowing.
The most likely answer is that there are regulatory concerns, or the outside shot that GOOGL decides to back out of the deal. In terms of regulatory concerns, it was reported previously that it was the Department of Justice, and not the Federal Trade Commission that was reviewing the deal, with a focus on privacy concerns of the behemoth GOOGL having even greater purview into personal data, specifically health-related data that Fitbit products have access to.
I have no reason to believe that GOOGL will back out the deal, but if they do there is a $250 million termination fee, a drop in the bucket for a company which ended its latest quarter with $121 billion in cash and short-term investments. If that happened, it would boost FIT's cash coffers to the tune of about $1/share, but it is still likely that the share price, which was in the mid-$3 range the month before the deal was announced, would take a huge it.
In the end, while I still believe that is more than likely that the deal goes through, I don't believe that attempting to take advantage of the current 11% discount is worth the risk.