- By Alex Gaw
- January 7, 2022
Activist investor Jana Partners is putting pressure on CX software solutions provider Zendesk to call off its proposed acquisition of Momentive Global, the company formerly known as SurveyMonkey, objecting vociferously to a deal that it said presented the wrong choice for Zendesk and its shareholders.
In a letter dated January 3 that was sent to the Zendesk board of directors, Jana said the Zendesk plan to acquire Momentive did not seem to be the result of a carefully considered strategy, but instead appeared to be “a reactive and impulsive decision” made only after Momentive reached out to Zendesk as part of a broad sale process on August 31.
Among the charges leveled by Jana, a New York-based firm and among the top shareholders of Zendesk, was that the acquisition showed “a reckless disregard” of Zendesk shareholder capital. Jana said Zendesk had substantially undervalued the company’s equity at $124 per share, much lower than the midpoint fair value of approximately $176 that had been calculated by Zendesk financial advisor Goldman Sachs.
Jana also accused the Zendesk board of using an artificially depressed stock price in calculating the exchange ratio. Zendesk chose to use the company’s average trading price in the calculation, Jana said, just prior to Zendesk’s announcement of strong 3Q earnings results, which would have driven up the Zendesk stock price as the market reacted to the favorable news.
Jana also charged Zendesk with failing to account for what it called “a substantial execution risk.” A completed acquisition would add a mere 1% to Zendesk’s topline growth rate and about 10% to its future stock price, rates deemed by Jana to be “de minimis”—too trivial or minor to merit consideration—when weighed against the many serious risks presented by the acquisition and Momentive’s “untested” executive team, Jana asserted.
“The merger proxy leaves us baffled by the Zendesk board’s decision to issue billions of dollars of undervalued equity to make its first ever scale of acquisition of a target with questionable strategic merit, significant integration risk, and minimal benefits in even a best-case scenario, all based on what appears to be a total whim,” the Jana letter pointed out.
Considered a very experienced activist investor with plenty of success in the information technology sector, Jana is not in the habit of sending letters to company boards, unless it believes it can significantly improve shareholder value or stop a stock’s value from deteriorating.
Zendesk, the San Francisco-based provider of software as a service (SaaS) solutions for customer support and communications, first announced its intention to acquire Momentive at the end of October last year, in an all-stock deal valued then at approximately $4 billion. Following the announcement, Zendesk’s stock value had plunged 20% by December 3. Momentive’s stock was down even further, by 25%.
Momentive, also based in Northern California like Zendesk, was the former SurveyMonkey, best known for its survey software. Since the Zendesk acquisition announcement last year, Momentive activist investor Legion Partners has also come out in opposition against the union of the two companies. For the acquisition to succeed, both Zendesk and Momentive investors would have to agree to the deal. The vote is expected to occur in late February or early March.
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