A slump in Zoom Video Communications Inc's share price likely limited its ability to sweeten a nearly $15 billion all-stock offer for call center software firm Five9 and led to the deal's collapse, Wall Street analysts said on Friday.
Five9 shareholders on Thursday voted down the sale to Zoom, denting the company's efforts to diversify its offerings as growth slows in its virtual conferencing business after a boom during the pandemic.
While some analysts expected Zoom to raise its offer to address Five9 shareholder worries about the price, others said an almost 30% drop in Zoom shares since July on the back of slowing growth only dampened the prospects.
Under the deal terms, Five9 shareholders would have received 0.5533 Zoom shares for each share held. The terms then implied a 12.8% premium over Five9's market price.
"The deal was negatively perceived from the beginning, given the small premium and all-stock structure," Jefferies analyst Samad Samana said in a note to clients. "ZM's stock declining 28% since the announcement only compounded the issues and likely made revising the terms difficult as well."
The deal - which would have been Zoom's biggest-ever purchase if completed - was also opposed by shareholder proxy advisory firms ISS and Glass Lewis. The firms had recommended that Five9 shareholders vote against the deal, citing growth concerns and dual-class shares.
"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," Piper Sandler analysts said.
Analysts at Barclays blamed the fall in Zoom's share price and possible regulatory scrutiny for the deal falling through.
A U.S. Justice Department panel had been reviewing the deal over possible national security concerns, though analysts had said it was unlikely the deal would be scrapped as a result.
"[Our] conversations, especially with event-driven investors, suggest that they believe Five9 was important enough to Zoom that they would ultimately bump/sweeten the offer for Five9," J.P. Morgan analysts said.
"Obviously, the recent pullback in stock prices for premium valuation software stocks makes the current situation all the more complicated."
Zoom's shares gained 1.6% to $265.79 in premarket trading, while Five9's stock was down about 3% at $155.01.
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