FIT stock has soared in the last week after rumors that Google’s parent company Alphabet Inc (NASDAQ:GOOGL) was considering a takeover of Fitbit Inc (NYSE:FIT) became a reality.
Google to Pay 67% Premium on FIT Stock
FIT shares initially surged over 25% last Monday when rumors that the internet giant was considering entering the wearables market with a bid for the fitness tracker company. By the end of the week, those reports finally came to fruition with the announcement that Google would buy the company for $2.1 billion USD at fully diluted share value, which actually represents a premium of approximately 67% on FIT’s opening price of $4.38 last Monday.
The valuation means that Google will pay approximately $7.35 per share of FIT stock, which is a far cry from its all-time peak of $51.90 back in August 2015, shortly after debuting on the New York Stock Exchange for $30.10. Despite the popularity of Fitbit’s devices, stiff competition in the wearables field meant that the company was squeezed at both ends of the market. The launch of Apple’s (NASDAQ:AAPL) smartwatch diverted customers at the higher end of the market, while cheaper alternatives from the likes of Garmin Ltd (NASDAQ:GRMN) undercut at the lower end.
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Benefits on Both Sides
It’s easy to see why Google is paying such a premium on FIT shares. Google customers have been eagerly awaiting the launch of a Pixel watch to rival that of Apple’s smartwatches, and Fitbit’s expertise and hardware development skills make it a hugely attractive investment for the company, which is perhaps lagging behind in terms of wearable health technology. Fitbit’s hardware is hugely popular and has a very distinct style, coupled with its own OS; although, it is unclear if Google will change this to its Wear OS.
The price tag aside, the deal also makes a lot of sense from a Fitbit perspective. James Park, the CEO of the company, said, “with Google’s resources and global platform, Fitbit will be able to accelerate innovation in the wearables category, scale faster and make health even more accessible to everyone.” The deal is expected to be finalized early next year, with FIT stock trading at $7.05 at the start of the week.
Featured Image: DepositPhotos © geoffgoldswain
