Zoom, Five9 Scrap $14.7 Billion Deal as Investors Vote No

(Bloomberg) -- Zoom Video Communications Inc. and Five9 Inc. scrapped their $14.7 billion merger agreement after a steep decline in Zoom's shares slashed the deal's value by almost a third, leading Five9 shareholders to reject the offer.

Zoom sought to buy Five9, a call-center software provider, to bolster its popular videoconferencing app in the face of stiffening competition. Five9 investors were offered 0.5533 shares of Zoom for each Five9 share, valuing the deal at $14.7 billion based on Zoom's July 16 closing price of $361.97. Since then, Zoom's stock has dropped 28%, ending Thursday at $261.50.

The deal “has been terminated by mutual agreement,” Five9 said Thursday in a statement. “The agreement did not receive the requisite number of votes from Five9 shareholders to approve the merger with Zoom.”

Five9 shares, which have dropped 10% since the transaction was announced, declined about 1.2% in extended trading following the news Thursday, while Zoom stock gained less than 1%. Advisory firms Institutional Shareholder Services Inc. and Glass Lewis had recommended voting against the deal, saying Zoom's prospects had fallen in a post-pandemic environment.

Five9 Chief Executive Officer Rowan Trollope said in a separate statement that since Zoom's offer, investors had expressed confidence “in Five9's future prospects” and its “significant potential for value creation as a standalone company.” The company scheduled an analyst day on Nov. 18 to lay out its plans. 

The acquisition also had been under regulatory scrutiny. The Federal Communications Commission earlier this month removed the proposed deal from streamlined review after the U.S. Department of Justice asked for the acquisition to be reviewed by a multiagency body that evaluates the security implications of foreign participation in a U.S. company. Zoom is based in San Jose, California, but employs “a sizable number of research and development personnel” in China and has data centers located there, the company said in a filing.

Five9, based in San Ramon, California, makes cloud-based software that uses artificial intelligence to help companies answer questions from customers and interact with them regardless of language, location or device. Five9's clients include brands like Under Armour, Citrix, Athena Health and Lululemon, according to its website.

Zoom has been looking for ways to keep growing as workers begin to return to the office and students go back to school, and the deal for Five9 would have helped it expand offerings to its more lucrative business and enterprise clients.

In Zoom's own statement Thursday, CEO Eric Yuan said the deal would have provided benefits to shareholders of both companies. Still, “the contact center market remains a strategic priority for Zoom, and we are confident in our ability to capture its growth potential,” he said.

The acquisition would have put Zoom into a $24 billion market for contact centers, helping it better compete with the likes of Cisco Systems Inc., RingCentral Inc. and Amazon.com Inc. in letting clients provide customer service via the internet. One beneficiary would have been Zoom Phone, the company's cloud-based calling service.

Five9 and Zoom said they will continue the partnership the companies had in place before the acquisition agreement.

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