Eric Yuan, founder and CEO of Zoom Video Communications Inc., speaks during the BoxWorks 2019 Conference at the Moscone Center in San Francisco, California, the United States, on Thursday, October 3, 2019.
Michael Kurz | Bloomberg | Getty Images
Zoom’s agreement to purchase cloud contact center software company Five9 was foiled Thursday after Five9 shareholders rejected the deal.
Zoom said in July that it is acquiring Five9 in a total share purchase for $ 14.7 billion, its first purchase of more than $ 1 billion and the second largest tech deal of the year at the time. The company has now missed an opportunity to rapidly expand its capabilities after its stock rose during the coronavirus pandemic.
Five9 shares fell 2% in expanded trading, according to the companies.
The purchase of Five9 “was an attractive way to offer our customers an integrated contact center offering,” wrote Eric Yuan, founder and CEO of Zoom, in a blog post. “Nevertheless, this was neither the basis for the success of our platform nor the only way for us to offer our customers a convincing contact center solution.”
According to an Aug. 27 letter sent to the Federal Communications Commission, a division of the US Department of Justice was considering the deal amid concerns about possible foreign involvement. But Zoom said last week, when news of the review was reported, that it still expects the deal to close in the first half of 2022.
While some large technology acquisitions, particularly in the semiconductor industry, have recently been rejected by regulators, it is very uncommon for companies to willingly cancel their own deal.
The proxy consultancy Institutional Shareholder Services had recommended shareholders reject the proposal, CNBC reported on September 17.
Zoom went public only two years ago and the pandemic has been a huge boon to its business as customers rushed to sign up for its video chat software. The company had $ 1.9 billion in cash on its balance sheet at the end of July.
Five9 also picked up customers who needed to set up remote and distributed call centers.
Five9 shareholders were ultimately dissatisfied with the small premium that Zoom was supposed to pay. At the agreed price, they would get only a 13 percent increase in the value of their shares from where they were trading prior to the agreement. Given the dynamism in cloud software and all the money investors have put into Five9’s competitors, a significantly higher premium was likely expected.
Additionally, Zoom’s stock is down 28% since the deal was announced, while Five9’s stock has fallen just 11%. Since this is a stock swamp, it means that Five9’s shareholders would have received even less bonus than the agreed price.
Zoom In Icon Arrows pointing outwards
Zoom and Five9 since the deal was agreed
Microsoft’s purchase of Nuance Communications for $ 19.7 billion, including debt, was a 23% mark-up on Nuance’s previous deal. In what later became the biggest tech deal of the year, Square agreed to buy Australia’s Afterpay for $ 29 billion, a 30% premium.
Zoom looked for Five9 to reduce his reliance on video and audio meetings that have become so popular in businesses and other organizations. Taking into account the expected impact of Five9, Zoom executives announced earlier this month that they would look at a total addressable market of $ 91 billion in 2025, up from $ 34 billion in 2019.
Zoom and Five9, who were in a product partnership prior to the acquisition agreement, said they will continue to support the integrations.
– CNBC’s Ari Levy contributed to this report.
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