Stock Forecast: What Termination of $15 Billion Zoom Merger With Five9 Means for Shareholders

Zoom-Five5-DOJ Review, New York, United States - 18 Apr 2019
Mark Lennihan / AP / Shutterstock.com

Zoom and Five9, a cloud contact center solution, terminated their $14.9 billion acquisition plan yesterday, following a series of mishaps on Zoom’s end, which triggered Five9 shareholders to not approve the merger.

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In a blog post titled “Zoom: What’s Next,” CEO Eric Yuan said that “we have also looked to acquire capabilities through M&A. Five9 was one such opportunity, as it presented an attractive means to bring to our customers an integrated contact center offering. That said, it was in no way foundational to the success of our platform nor was it the only way for us to offer our customers a compelling contact center solution.”

Five9 issued a statement yesterday, saying that its merger agreement with Zoom has been terminated “by mutual agreement.”

“The agreement did not receive the requisite number of votes from Five9 shareholders to approve the merger with Zoom. Five9 will continue to operate as a standalone publicly traded company,” according to the statement, which added that the companies will continue the partnership that was in place prior to the announcement, which includes support for integrations between their respective Unified Communications as a Service and Contact Center as a Service solutions and joint go-to-market efforts.

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Zoom ran into a series of issues prior to the merger’s bust. First, The Wall Street Journal reported that Proxy advisory firm Institutional Shareholder Services recommended last week that Five9 shareholders vote against the acquisition, citing concerns about Zoom’s growth prospects as pandemic lockdowns ease.

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Then, the deal drew scrutiny from U.S. regulators over Zoom’s ties with China. The Justice Department said it requested that the Commission review the application to determine whether it “poses a risk to the national security or law enforcement interests of the United States. USDOJ believes that such risk may be raised by the foreign participation (including the foreign relationships and ownership) associated with the application,” according to a letter posted on the Federal Communications Commission website.

Additionally, Zoom’s stock has dropped 28% since the deal was announced, while Five9 shares have fallen only 11%, CNBC reported, adding that because it’s a stock swap, that means Five9 shareholders would have been receiving even less of a premium than at the agreed-upon price.

Peter Cohan, a lecturer at Babson College and author of “Goliath Strikes Back,” told GOBankingRates that stocks move up if they beat growth expectations each quarter and raise their forecasts above what analysts expect.

“Zoom lowered its third quarter revenue expectations to 31% growth, after enjoying a 191% surge in the first quarter,” Cohan said. “Unless Zoom can report much faster third quarter growth and raise its forecast for the fourth quarter, its stock will continue to fall. I was not very bullish on the Five9 deal so I do not think Zoom is losing much by its termination. But management has to find new sources of growth or its stock will continue to fall.”

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In addition, Piper Sandler analysts said that “While we think the deal made strategic sense for both companies over the long term, the variable deal tied to volatile (Zoom) shares was not an economically attractive deal for (Five9) shareholders at this time,” Reuters reports.

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Last updated: October 1, 2021

About the Author

Yaël Bizouati-Kennedy is a former full-time financial journalist and has written for several publications, including Dow Jones, The Financial Times Group, Bloomberg and Business Insider. She also worked as a vice president/senior content writer for major NYC-based financial companies, including New York Life and MSCI. Yaël is now freelancing and most recently, she co-authored  the book “Blockchain for Medical Research: Accelerating Trust in Healthcare,” with Dr. Sean Manion. (CRC Press, April 2020) She holds two master’s degrees, including one in Journalism from New York University and one in Russian Studies from Université Toulouse-Jean Jaurès, France.

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