On July 18, 2021, video conference software designer and seller Zoom Video Communications Inc. (ticker: ZM) announced that it would buy cloud-based contact software designer Five9 Inc. (ticker: FIVN) in an all-stock record-setting transaction valued at over $14.7 billion. The deal was subject to approval by Five9 shareholders, and a vote by the same has revealed that the deal was slated to be closed by the end of the second quarter of the 2022 fiscal year (Q2 FY2022) will not go through.
Yesterday evening, Five9 announced that the merger with Zoom had been terminated “by mutual agreement” after Five9’s shareholders voted against it, citing reasons like the volatility of Zoom’s stock. Since the deal was supposed to be closed in an all-stock transaction in which Five9 shareholders would receive 0.5333 shares of Class A common stock of Zoom for each Five9 share so a decline in the value of Zoom’s stock means that the deal would close by less than the targeted $14.7 billion.
Five9 designs, develops, markets, and sells a highly scalable and secure cloud contact centre that delivers a comprehensive suite of easy-to-use applications used for managing and optimizing customer interactions across many different channels.
According to data provided by Yahoo Finance at the time of the announcement in July, Zoom’s acquisition of Five9 would mark a 24% premium to the company’s market capitalization valued at $11.91 billion. Five9 currently has a market capitalization of $10.82 billion.
Another reason that is believed to be behind the refusal of the merger by Five9 shareholders is that the U.S. Department of Justice was investigating the deal for potential security risks.
Zoom Chief Executive Officer (CEO) Eric Yuan, who released an “excited statement” at the announcement of the deal in July, released a rather sombre one yesterday after the deal was called off, saying that the prior excitement has been washed away after considering the impact of the deal to financial discipline of the two companies, but went on to say that his company will still release its cloud-based contact-centre solution early next year dubbed “Zoom Video Engagement Centre”.
Yuan added that Zoom is still pursuing entering the contact-centre market that the company is confident it can ride along and benefit from its growth potential.
After the deal fell through, Five9 issued a statement with details of its general plans moving forward. In the statement, Five9 revealed that it would hold its earnings call on November 8, 2021, in which it will release its earnings report for the quarter that ended on September 30, 2021, and ten days later, it will hold an event for financial analysts.
Five9 CEO Rowan Trollope said that the company had been involved in extensive engagements with its shareholders since the announcement of the merger in July. Through these engagements, the company has got valuable feedback, views, and prospects that will be used to create value for the company moving forward. And indeed, Five9 will need that value creation because after announcing that the deal had been called off last evening, its stock fell nearly 2% in extended-hours trading while Zoom was unshaken by the news, and it went on to rise 0.2%. Currently, Five9 stock is trading at $159.74 a share, while Zoom is trading at $261.50 a share.
However, analysts at Truist Financial believe that Five9 will still do well financially even though the deal fell through. On September 17, 2021, Truist analysts revised their price target for Five9 from $212 to $190, and that was based on the belief that a deal would be struck with Zoom. The drop in Five9’s share price target was because Zoom’s stock was taking a downward movement. Ever since the company released its Q2 FY2022 earnings report on August 30, 2021, its stock has been plummeting even though the report posted figures that beat analysts’ expectations. Zoom has dropped 10.09% in the past month.