Zoom and Five9 abandon $ 14.7 billion acquisition

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

Cloud contact center software company Five9 and video calling software maker Zoom announced Thursday that they would not pursue Zoom’s plan to acquire Five9 for $ 14.7 billion.

The failure of the deal means that Zoom lost the opportunity to rapidly expand his skills after his stock became a pandemic star during the coronavirus pandemic.

Five9 shares fell 2% in expanded trading after the companies announced that the acquisition did not receive enough votes from Five9 shareholders.

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.

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.”

Zoom went public only two years ago, and the pandemic brought the company lots of new customers and significant profits. At the end of July, it had $ 1.9 billion in cash on its balance sheet.

Zoom announced its intention to purchase Five9 on July 19, which marks the company’s first attempt to spend over $ 1 billion on a transaction. It was the third largest tech deal announced that year behind Microsoft Nuance with $ 19.7 billion including debt and Square’s agreement to buy Australia’s Afterpay for $ 29 billion, a 30% premium. When Five9 released its quarterly results on July 27, the company declined to publish a quarterly or full-year forecast because of the upcoming deal.

The deal would have reduced Zoom’s reliance on enabling the video and audio meetings that people rushed to use last year after many schools and offices were closed. Zoom’s organic growth has slowed significantly. Taking into account the expected impact of Five9, Zoom executives told analysts on Sept. 13 that they would target a total market of $ 91 billion in 2025, up from $ 34 billion in 2019.

While some large technology acquisitions, particularly in the semiconductor industry, have recently been foiled by regulators, it is very uncommon for companies to voluntarily terminate their own transaction.

The proxy advisory firm Institutional Shareholder Services had recommended shareholders reject the proposal, CNBC reported on September 17.

One problem for Five9 shareholders may have been the small premium that Zoom was supposed to pay. At the agreed price, Five9 shareholders only received a 13% increase in the value of their shares from where they were trading prior to the agreement. Given the dynamism of cloud software and all of the money investors are pouring into Five9’s competitors, a significantly higher premium was likely required to get shareholders on board.

Zoom’s stock is down 28% since the deal was announced, while Five9’s stock is down just 11%. Since this is an all-stock deal, it means that Five9’s shareholders would have received even less premium than the agreed price.

The two companies will continue to support the integration of their products, the statement said.

– CNBC’s Ari Levy contributed to this report.

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