Zoom’s Nearly $15 Billion Acquisition of Five9 Is Scrapped

“We had the opportunity to engage extensively with our shareholders since our transaction announcement,” Five9 chief executive Rowan Trollope said. The company said it would continue its current relationship with Zoom, which includes contact center services.

Eric Yuan, chief executive at Zoom, said that while the company had looked forward to the potential partnership, “financial discipline is foundational to our strategy.” He said Zoom remains focused on increasing value for shareholders and customers.

Zoom’s stock remained flat after the news at roughly $261 a share. Five9 shares decreased about 2% in after-hours trading.

The rejected bid comes after proxy advisory firm Institutional Shareholder Services recommended Five9 shareholders vote against the acquisition, highlighting concerns about Zoom’s slowing growth as many people go back to more in-person meetings. Glass, Lewis & Co., another proxy advisory firm, also advised Five9 shareholders to vote against the deal over similar concerns.

The blocked deal is a blow to Zoom’s growth plans. After becoming one of the biggest breakout hits during the pandemic as the dominant video-conferencing platform, the company faces a more uncertain future. In its most recently reported earnings, in August, Zoom’s sales guidance came in lower than expected as small businesses and consumers are expected to spend less on Zoom. Zoom shares have fallen nearly 30% since it announced the planned acquisition of Five9.

In trying to buy Five9, Zoom was attempting to break into the emerging market of cloud-based contact-center software, which helps businesses keep in touch with their customers.

“We expect that this acquisition will help enhance Zoom’s presence with customers and allow us to accelerate our long-term growth opportunity by adding the $24 billion contact-center market,” Mr. Yuan said when he announced the agreement.

The deal also drew scrutiny from U.S. regulators over national security concerns. The Wall Street Journal reported last week that a Justice Department-led committee was investigating the planned merger over Zoom’s ties with China. In a letter posted on the Federal Communications Commission website, the Justice Department said there could be risk posed by “the foreign relationships and ownership.”

“The Five9 acquisition is subject to certain telecom regulatory approvals,” a Zoom spokeswoman said of the inquiry at the time. “We have made filings with the various applicable regulatory agencies, and these approval processes are proceeding as expected.”

Zoom had said it still expected to receive regulatory approvals by the first half of next year, which was the closing timeline it initially anticipated when announcing the deal.

Questions around Zoom’s links to China have come to the fore during the pandemic as the service became a lifeline for many under lockdown orders. Many of Zoom’s engineers have historically been based in China, and last year security researchers caught the company storing encryption keys—long strings of numbers and characters that can be used to access encoded communications—on servers in the country. The company has said that was a mistake and promised it wouldn’t happen again.

U.S. prosecutors have also accused Zoom of improperly working with the Chinese government. In December, federal prosecutors in Brooklyn charged a China-based executive at Zoom with conspiring to disrupt commemorations over Zoom of the deadly 1989 Chinese military assault on pro-democracy demonstrators in Beijing’s Tiananmen Square.

In response to the federal charge, Zoom said that it fully cooperated with U.S. authorities, undertook an internal review and terminated the employee for violating company policies. At the time, other employees had been placed on administrative leave while its investigation continued, the company said.

Write to Aaron Tilley at [email protected] and Sebastian Herrera at [email protected]