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Five9 Inc. shareholders are being told not to sign off on Zoom Video Communications Inc.’s offer to acquire the company because stock volatility has made the deal less attractive, according to a new recommendation from Institutional Shareholder Services Inc.
Back in July, Zoom offered to buy cloud contact center software company Five9 in a then-valued $14.7 billion all-stock deal. Under the offer, Five9
FIVN,
shareholders will get 0.5533 of a Zoom
ZM,
share for each Five9 share they own.
ISS noted that Zoom shares dropped nearly 17% the day after the company’s earnings report on Aug. 30., where Zoom’s outlook was below Wall Street estimates and sales growth was slowing. As a result, ISS said that the original offer implied an offer of $200.28 per Five9 share, whereas the current exchange rate implies $155.72 a share.
On Friday, Zoom shares opened at $279.79, while Five9 shares opened at $172.55. At those prices, Zoom’s deal values Five9 at $154.81 per share.
While Five9’s board recommends the deal, ISS feels that shareholders aren’t getting a fair shake, noting that during negotiations, “the parties appeared to agree that FIVN’s takeout value was around $210 per share.”
“The rationale for the transaction appears sound, particularly given the complementary nature of FIVN and ZM’s offerings, and the fact that the combined company would have access to a much larger addressable market,” ISS said in a report. “However, the all-stock deal exposes FIVN shareholders to a more volatile stock whose growth prospects have become less compelling as society inches towards a post-pandemic environment.”
ISS even cited a lack of investor enthusiasm following Zoom’s recent Zoomtopia 2021 user conference, saying that “new technology and services, did not revive the stock and seemingly failed to blunt its shareholders’ concerns over continued business churn.” Shares closed down 3.7% the day Zoom announced new services on Monday at the conference.
Over the past 12 months, Zoom shares have declined 31%, while Five9 shares have gained 45%. In comparison, the S&P 500 Index
SPX,
has gained 32% and the tech-heavy Nasdaq Composite Index
COMP,
has risen 38%.
