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Zoom and Five9 drop US$14.7 billion merger amid US security review over video-conference app’s operations in China

  • Five9 shareholders reject transaction after Justice Department added additional regulatory review to deal
  • Institutional Shareholder Services, an influential proxy adviser, urged Five9 investors to vote against the deal in part over political risks in Zoom’s ‘substantial operations in China’

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A woman on a Zoom call. Photo: Shutterstock.
Chad Bray

Zoom Video Communications and cloud-based customer service provider Five9 called off their US$14.7 billion merger overnight on Friday, weeks after the US Department of Justice called for a national security review and an influential proxy adviser recommended against the deal in part because of Zoom’s China ties.

The companies said they “mutually agreed” to terminate the transaction after not enough of Five9’s shareholders voted in favour of the transaction.
“We had the opportunity to engage extensively with our shareholders since our transaction announcement,” Five9’s chief executive Rowan Trollope said in a press release. “We greatly appreciate their feedback and confidence in Five9’s future prospects and share their views regarding the significant potential for value creation as a stand-alone company.”

The deal collapsed after Institutional Shareholder Services (ISS), which writes independent reports evaluating deals and advise shareholders, urged investors to reject the transaction, citing in part potential political risk associated with Zoom’s “substantial operations in China”. ISS also cited Five9’s standalone prospects and the valuation of the proposed transaction in recommending against the deal.

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Last week, the Justice Department called for an inter-agency committee that reviews foreign participation in the US telecommunications sector to review potential risk raised by “foreign relationships and ownership” associated with the deal and determine whether it poses a threat to “national security or law enforcement interests.” It added an additional regulatory layer to an inquiry already being conducted by the Federal Communications Commission.

Zoom, based in San Jose, Calif., said at the time it expected to receive required regulatory approvals for the deal and for the transaction to still close in the first half of next year.

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