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Google Scores European Approval for Fitbit Acquisition

By Evan Niu, CFA - Dec 18, 2020 at 9:30AM

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European regulators have signed off on the deal -- but with some strings attached.

It's been over a year since Alphabet ( GOOG -0.87% ) ( GOOGL -0.68% ) subsidiary Google announced its proposed acquisition of Fitbit ( FIT ), and the two companies have been working to secure the necessary regulatory approvals ever since. A few months ago, antitrust regulators in the European Union had extended the deadline to make a decision to Jan. 8, but have now approved the deal well ahead of that deadline.

Here's what investors need to know.

Fitbit Sense

Fitbit Sense. Image source: Fitbit.

Approved with strings attached

The European Commission has signed off on the purchase but there are some strings attached. Google won't be able to use Fitbit's sensitive health data for ad targeting, which was a key concern that critics and privacy advocates had regarding the deal. The companies had already committed to as much, but the Commission's conditions are more formally binding.

All of Fitbit's user data must also be segregated into a separate data silo, and European users will have control over how that data is used. The tech giant also has to commit to keeping Android application programming interfaces (APIs) available to other manufacturers in order to maintain a competitive market. All of these commitments last for 10 years, and the Commission may be able to extend the restrictions around ad targeting by an additional 10 years, if necessary.

"We can approve the proposed acquisition of Fitbit by Google because the commitments will ensure that the market for wearables and the nascent digital health space will remain open and competitive," Europe's chief antitrust enforcer Margrethe Vestager said in a statement. "The commitments will determine how Google can use the data collected for ad purposes, how interoperability between competing wearables and Android will be safeguarded and how users can continue to share health and fitness data, if they choose to."

More hurdles to clear

In the U.S., the Department of Justice (DOJ) is being tasked with reviewing the proposed acquisition. The DOJ has been expected to make its decision after its counterparts in the EU. That agency sued Google in October over allegations that the company violated antitrust laws to maintain its dominance in the search and advertising markets.

Just this week, a majority of state attorneys general filed similar suits against Google. Ten state prosecutors filed a complaint on Wednesday, followed by over 30 more state attorneys general with a separate case on Thursday. That brings the number of antitrust lawsuits that Google must contend with to three. These cases don't relate specifically to the Fitbit acquisition but underscore the legal challenges that Google is currently facing.

Japan's Fair Trade Commission (FTC) has suggested that it might scrutinize the transaction, too, which would add yet another regulatory hurdle. The EU approval is a major step toward closing the deal, but Google and Fitbit aren't totally in the clear yet.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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