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Zoom and Five9 abandon $14.7 billion acquisition

Eric Yuan, founder and chief executive officer of Zoom Video Communications Inc., speaks during the BoxWorks 2019 Conference at the Moscone Center in San Francisco, California, U.S., on Thursday, Oct. 3, 2019.

Michael Short | Bloomberg | Getty Images

Cloud contact center software company Five9 and video calling software maker Zoom said Thursday they will not go forward with Zoom’s plan to acquire Five9 for $14.7 billion.

The scuttling of the deal means Zoom has lost an opportunity to quickly broaden its capabilities after its stock became a pandemic star during the coronavirus pandemic.

Five9 shares fell 2% in extended trading following the statement from the companies, which said the acquisition didn’t receive enough votes from Five9 shareholders.

A branch of the U.S. Department of Justice was reviewing the deal out of concern of potential foreign participation, according to a letter dated Aug. 27, that was sent to the Federal Communications Commission. But Zoom said last week, when news of the review was reported, that it still expected the deal to close in the first half of 2022.

Buying Five9 “presented an attractive means to bring to our customers an integrated contact center offering,” Eric Yuan, Zoom’s founder and CEO, wrote in a blog post. “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.”

Zoom went public just two years ago, and the pandemic brought the company many new customers and considerable profit. It had $1.9 billion in cash and equivalents on its balance sheet at the end of July.

Zoom announced its intent to buy Five9 on July 19, marking the company’s first attempt to spend over $1 billion on a transaction. It was the third-biggest tech deal announced this year, behind MicrosoftNuance, at $19.7 billion including debt, and Square’s agreement to buy Australia’s Afterpay for $29 billion, which amounted to a 30% premium. On July 27, when Five9 reported its quarterly results, the company declined to issue quarterly or full-year guidance as a result of the then-pending deal.

The deal would have reduced Zoom’s dependence on enabling the video and audio meetings that people rushed to use last year after many schools and offices closed. Zoom’s organic growth has slowed considerably. Factoring in the impact it expected from Five9, on Sept. 13 Zoom executives told analysts they were looking at a $91 billion total addressable market in 2025, up from $34 billion in 2019.

While some large tech acquisitions, most notably in the semiconductor industry, have been scuttled of late by regulators, it’s highly unusual for companies to willingly terminate their own deal.

Proxy advisory company Institutional Shareholder Services had recommended shareholders vote down the proposal, CNBC reported on Sept. 17.

One issue for Five9 shareholders might have been the small premium that Zoom was set to pay. At the agreed upon price, Five9 shareholders were only going to receive a 13% bump in the value of their shares over where they were trading prior to the agreement. Given the momentum in cloud software and all of the money investors have been pouring into Five9’s peers, a significantly higher premium was likely needed to get shareholders on board.

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

The two companies will maintain support for integrations of their products, according to the statement.

— CNBC’s Ari Levy contributed to this report.

WATCH: Is Zoom’s run over?


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