It's been four weeks since Alphabet (GOOG -1.57%) (GOOGL -1.48%) put a ring on it, announcing plans to buy Fitbit (FIT) in a $2.1 billion deal. The transaction would cash out investors in the wearables pioneer at $7.35 a share. The stock nearly traded that high on the day the acquisition was announced, but it has been drifting lower lately.

Fitbit shares closed at $6.78 on Monday. With the transaction set to close at some point in 2020, it would seem that buyers at that price could bank on a pretty hearty 8.4% gain for parking their money in a situation that's largely immune to the usual fluctuations of stock market investing-- especially if the deal can be wrapped up in the first half of the year. However, discounts don't widen like this for no reason. If the arbitrageurs who make their living sniffing out pricing inefficiencies aren't jumping on this opportunity, that suggests a timely closing of this transaction isn't a slam dunk. 

Fitbit spokeswoman Julianne Hough jumping rope while wearing a Fitbit fitness tracker.

Image source: Fitbit.

Band brand on the run 

Neither party is likely to walk away from this transaction. Fitbit's revenue is declining for the third consecutive year, and it's clearly aware that it needs a strong partner to help it compete. Google is good for the money, and backing out of an announced transaction is never a good look in future buyout negotiations. 

However, external forces are where this deal could come undone, and this is where we get to the thorny issue of health data privacy. Fitbit sells fitness trackers and smartwatches that monitor their wearers' activity. If Google starts serving you ads for sleeping aids after a rough night, or suggests gym memberships when it sees your daily activity start to tail off, it could open a can of worms with privacy advocates, regulators, and the broader public. 

Fitbit and Google know this. 

"Fitbit will continue to put users in control of their data and will remain transparent about the data it collects and why," read the Nov. 1 press release announcing the buyout bid. "The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads."

However, it's easy to see how the data privacy issue could hold up a deal at a time when social media and online advertising giants are under fire for their questionable marketing practices. Alphabet will have to make a compelling case that it won't dance in the gray areas of data manipulation, but one could also argue that Fitbit could conceivably start selling its data on its own if regulators block its acquisition. 

There shouldn't be any other obstacles to this deal beyond the data privacy concerns. There's only one company running away with the smartwatch market -- and it's not Alphabet -- so this proposed corporate combination should breeze through the antitrust regulators. And given that the fitness tracker and wearable markets have become a jumbled, commoditized mess, if anything, putting Fitbit into Alphabet's arsenal would likely lead to lower prices rather than higher ones.

For now, this all leaves Fitbit trading at a surprisingly steep discount to the bid price of a deal that should close in a few months. Something has to give here, and something probably will.