Five investors vote against all-stock deal amid concerns over Zoom’s growth
“Since the announcement of our transaction, we have had the opportunity to engage with our shareholders extensively,” Five9 Chief Executive Rowan Trollope said in the statement. The company said it would continue its existing relationship with Zoom, which includes contact center services.
Zoom CEO Eric Yuan said in a statement that the company was looking forward to a potential partnership, adding that “financial discipline is fundamental to our strategy.” He added that Zoom is focused on increasing value for shareholders and customers.
Zoom’s stock remained flat after the news at about $262 per share. Five stocks were down more than 1% in after-hours trading.
The declined bid comes after proxy advisory firm Institutional Shareholder Services recommended five shareholders vote against the acquisition, highlighting concerns about Zoom’s slowing growth as many go back to more in-person meetings. Another proxy advisory firm, Glass, Lewis & Co., also advised Five9 shareholders to vote against the deal over similar concerns.
The deal also drew scrutiny from US regulators over national security concerns. Businesshala reported last week that a Justice Department-led committee was investigating Zoom’s planned merger on ties with China. In a letter posted on the Federal Communications Commission website, the Justice Department said there could be risks from “foreign ties and ownership.”
Zoom said it still hoped to get all the necessary approvals by the middle of next year.
The company has been one of the biggest beneficiaries of shifts to remote work and distance schooling. The company’s shares gained in value last year following widespread lockdowns in the US and around the world. It was taking advantage of its strong share price to acquire Five9 in an all-stock deal.
The blocked deal is a blow to Zoom’s growth plans. After becoming one of the biggest successes during the pandemic as the leading video-conferencing platform, the company is facing a more uncertain future. In its most recent earnings release in August, Zoom’s sales guidance came in below expectations as small businesses and consumers are expected to spend less on Zoom. Shares of Zoom have fallen nearly 30% since the announcement of the planned acquisition of Five9.
In trying to buy Five9, Zoom was attempting to break into the emerging market of cloud-based contact-center software that helps businesses stay in touch with their customers.
Questions have emerged about Zoom’s links to China during the pandemic as the service has become a lifeline for many under lockdown orders. Many of Zoom’s engineers have historically been based in China, and last year security researchers caught the company storing encryption keys—long strings of numbers and characters that can be used to access encoded communications—in the country. on the server. The company has said it was a mistake and promised it would not happen again.
US prosecutors have also accused Zoom of working unfairly with the Chinese government. In December, federal prosecutors in Brooklyn, NY charged a China-based executive at Zoom of conspiring to disrupt the commemoration of a deadly 1989 Chinese military attack on pro-democracy protesters in Beijing’s Tiananmen Square.
In response to the federal allegation, Zoom said it cooperated fully with US officials, conducted an internal review and terminated the employee for violating company policies. At that time, other employees were placed on administrative leave while the investigation was ongoing, the company said.
Rishi Jaluria, an analyst at RBC Capital Markets, said Zoom still has growth potential despite the abandoned deal.
“Hybrid work is here to stay and Zoom still has differentiated technology compared to other vendors,” he said. “Zoom continues to grow as a comprehensive enterprise communication and collaboration platform, as seen with the success of the Zoom phone. I think Zoom would have benefited from Five9, but I don’t think they desperately needed it.