Zoom’s acquisition of Five9, valued at nearly $ 15 billion, was rejected by shareholders

Zoom video communication Inc.’s

ZM 1.59%

Nearly $ 15 billion offer to acquire contact center company Five9 Inc.

FIVN -1.23%

was shot down Thursday, undoing a major expansion plan for a video conferencing powerhouse that has struggled to test its perceived connections with China.

Five9 released a press release stating that the deal had not received enough votes from its shareholders and that the merger plan between the two companies had been “mutually agreed”.

“Since our announcement of the transaction, we have had the opportunity to interact intensively with our shareholders,” said Rowan Trollope, CEO of Five9, in the statement. The company said it will continue its current relationship with Zoom, which includes contact center services.

Eric Yuan, CEO of Zoom, said in a statement that while the company was excited about the potential partnership, “financial discipline is the foundation of our strategy.” Zoom continues to focus on adding value for shareholders and customers.

Zoom’s stock was unchanged at around $ 262 per share after the news. Five9 shares lost more than 1% in after-hours trading.

The rejected offer comes after proxy advisory firm Institutional Shareholder Services recommended Five9 shareholders to vote against the acquisition, highlighting concerns about Zoom’s slowing growth as many people return to more face-to-face meetings. Another proxy advisory firm, Glass, Lewis & Co., advised Five9 shareholders to vote against the deal because of similar concerns.

The deal also drew scrutiny from US regulators over national safety concerns. The Wall Street Journal reported last week that a Justice Department-led committee is investigating the proposed merger over Zoom’s links with China. In a letter posted on the Federal Communications Commission website, the Justice Department said there may be risks from “foreign relationships and property.”

Zoom said it still expects to get all the necessary permits by the middle of next year.

The company has been one of the biggest beneficiaries of the move to remote working and distance learning. The value of the company’s shares skyrocketed after widespread lockdowns in the US and around the world last year. It used its strong share price to acquire Five9 as part of the all-stock deal.

The blocked deal is a blow to Zoom’s growth plans. After becoming one of the biggest breakout hits as the dominant video conferencing platform during the pandemic, the company faces a more uncertain future. In its most recently reported earnings in August, Zoom’s revenue forecast was lower than expected as small businesses and consumers are expected to spend less money on Zoom. Zoom shares have fallen nearly 30% since the announcement of the proposed acquisition of Five9.

With the purchase of Five9, Zoom sought to break into the emerging market of cloud-based contact center software, which helps companies stay in touch with their customers.

Questions about Zoom’s connections with China have come to the fore during the pandemic when the service became a lifeline for many under lockdown orders. Many of Zoom’s engineers have historically been based in China, and in the past year, security researchers caught the company laying encryption keys – long strings of numbers and characters that can be used to access encrypted communications – on servers in the country saved. The company said this was a mistake and promised it would not happen again.

US prosecutors have also accused Zoom of improperly cooperating with the Chinese government. In December, federal prosecutors in Brooklyn, NY, charged a China-based Zoom executive with conspiring to disrupt Zoom’s commemorations over Zoom’s deadly Chinese military attack on pro-democracy protesters in Tiananmen Square in Beijing in 1989.

In response to the federal indictment, Zoom said it fully cooperated with US authorities, conducted an internal review, and fired the employee for violating company policies. At this point, other employees had been taken on administrative leave while the investigation continued, the company said.

Rishi Jaluria, an analyst at RBC Capital Markets, said Zoom still has growth potential despite the broken deal.

“Hybrid work is here to stay, and Zoom still has technology differentiated from other vendors,” he said. “Zoom continues to evolve into a broader corporate communications and collaboration platform, as demonstrated by the success of Zoom Phone. I think Zoom would have benefited from Five9, but I don’t think they needed it badly. “

Write to Aaron Tilley at aaron.tilley@wsj.com and Sebastian Herrera at Sebastian.Herrera@wsj.com

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