Special Situation: Fitbit / Google take over
Disclaimer: This is not investment advice. DO YOUR OWN RESEARCH !!!
Readers of my blog might remember that I already owned Fitbit in late 2018 at 5 USD per share. I was lucky to sell the stock with a small profit before the stock lost more than half of its value in summer 2019:
This is what I wrote initially as part of the investment case:
if the founders would decide to sell now, I think the price for a take over would be significantly higher than the current stock price. Theoretically FitBit could be an interesting target for players like Microsoft, Google or even Amazon who want a quick entry into the corporate health care sector
Well, maybe someone from Google read my blog, but actually they did make a bid at USD 7,35 per share in November 2019.
Interestingly, the FitBit stock price jumped to 7,14 USD per share directly after the announcement (from an “undisturbed” level of around 3,50 USD) but then the stock price slowly declined even before the current carnage.
So where is the problem ? Google has obviously the means for the purchase, and the founders of FitBit are willing to sell as they seem to have realized that competing with Apple doesn’t work out.
On top of that, there is a 250 mn USD termination fee to be paid by Google if the deal doesn’t work out.
The issue here seems to be regulatory risk. For instance, the “European Data Protection Board” has voiced concerns as wellas US antitrust experts.
However, Google has a 250 mn USD incentive to fight this through although of course this could take some extra time. For Google this is also a strategic move to be able to compete better with Apple and i don’t think they give up easily and have prepared themselves for the regulatory battle.
One additional remark here: I am not sure if this is thought too far, but in the times of Covid19, it would make actually a lot of sense to track both, people’s movements and vital signs. South Korea for instance has used position tracking for infected persons in order to warn potentially endangered Koreans. So adding vital signs to people’s profile might become popular quite soon.
So let’s look at the implied odds against my estimate at a share price of currently 6,20 USD per share:
This is a very simple analysis and the 90% probability is my own, “gut feeling” based estimate. Of course, the downside if the deal breaks could be higher after the recent market carnage, on the other hand I do think that there are other potential buyers that might step in.
I had established a 4% position last week at ~6,30 USD per share. So far the position survived this week quite well. If however enough buying opportunities show up, I might sacrifice (or pare down) FitBit for more long term quality opportunities in the coming weeks/months.
As mentioned in my first “panic journal”, these positions are “behavioural parking” positions for me to slow down my urge (and greed) to buy a lot right now.