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Google Might Need to Make Sacrifices to Close Fitbit Deal

By Evan Niu, CFA - Jul 10, 2020 at 8:15AM

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European regulators are reportedly looking for concessions before approving the $2.1 billion acquisition.

There's a lot of skepticism surrounding Alphabet (GOOG 0.45%) (GOOGL 0.52%) subsidiary Google's pending acquisition of Fitbit (FIT), a controversial deal that was announced last November. Consumer advocacy groups and data regulators in Europe are among many entities that worry about Google getting its hands on all of the user data that Fitbit has garnered over the years, particularly considering the sensitive nature of health data.

The search giant might have to be make some sacrifices if it wants to close the deal.

Fitbit products

Image source: Fitbit.

Looking for concessions

Reuters reports that antitrust regulators in the European Union might push Google to make certain concessions in order to mitigate criticisms that the $2.1 billion acquisition could undermine competition. If the company is unwilling to do so, regulators are prepared to open a full-scale probe into the deal, according to the report.

One possible concession would be a formal guarantee that Google would not use Fitbit's health data for ad targeting purposes. Both companies have said that such data would not be used for advertising, but regulators might want something more binding.

"The company never sells personal information, and Fitbit health and wellness data will not be used for Google ads," Fitbit assured investors when the deal was announced. Google hardware chief Rick Osterloh echoed verbatim, "Fitbit health and wellness data will not be used for Google ads."

The news comes shortly after the Financial Times reported that EU regulators have started asking rivals how such a deal might impact the competitive landscape around digital health platforms and wearable technology. The lengthy 60-page questionnaires suggest that regulators could be laying the groundwork for a full-fledged investigation.

For what it's worth, Google has maintained that the acquisition is largely predicated on hardware instead of user data. Google's efforts to expand into wearable gadgets have largely fallen flat, with many third-party manufacturers abandoning its Wear OS smartwatch platform. Meanwhile, Fitbit's pivot from basic activity trackers to smartwatches has been relatively more successful -- Fitbit was the No. 5 player in the smartwatch market in the first quarter, according to Canalys.

The doubt discount

Investors are clearly skeptical about the deal's chances of securing regulatory approval. As of this writing, Fitbit shares are trading at a 10% discount compared to the $7.35 per share offer. Notably, that's an all-cash offer with no stock component, so market fluctuations reflect doubts that the acquisition will close. As recently as May, Fitbit still expected the transaction to close during 2020.

"If Google acquires consumers' data generated by the use of Fitbit wearables, including now COVID-19 related data, it would be able to use that data for its own benefit and could undermine the ability of other companies to bring new products to consumers," European consumer advocacy organization BEUC said recently. "This could harm innovation and consumer choice in several markets such as online advertising, search, health and wearables."

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Evan Niu, CFA has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Fitbit. The Motley Fool has a disclosure policy.

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