The $14.7 billion deal involving a bid by video conferencing company Zoom to acquire cloud contact center Five9 fell apart at the 11^th hour, scuttled by Five9 shareholder concerns over the recent drop in Zoom’s stock price and the company’s drop in value, along with jitters caused by an ongoing US Department of Justice (DOJ) review on how the transaction might impact national security interests.

During a shareholder meeting on September 30, a majority of Five9 investors voted against the acquisition, resulting in the deal failing to garner enough votes to pass. The rejection of the deal came as shareholder proxy firms Institutional Shareholder Services (ISS) and Glass Lewis advised against going forward with the all-stock arrangement, citing growth concerns and the small premium that Five9 shareholders would have ultimately received from Zoom. Both ISS and Glass Lewis are providers of corporate governance services and what they deem to be responsible investment solutions.

Acknowledging the sentiment of its shareholders, Five9 CEO Rowan Trollope said in a statement: “We had the opportunity to engage extensively with our shareholders since our transaction announcement. 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 standalone company.”

Since Zoom announced the acquisition a little over two months ago in July 18, its stock price has fallen 28% because of slowing growth. In comparison, Five9’s stock price has dipped 11% during the same time. Under the terms of the deal, Five9 shareholders would have received 0.5533 of Zoom share for each share held, Reuters reported, implying a premium over Five9’s market price of just 12.8%—significantly lower than what Five9 had expected given the optimistic prospects forecast for cloud software in general and the large sums that investors have poured into Five9’s rivals. The deal had been expected to close in the first half of 2022.

Based in San Jose, California, Zoom went public in 2019, and the company gained enormous success during the COVID-19 pandemic as customers all over the world signed up for its video chat software. At the end of July, Zoom had $1.9 billion in cash and equivalents on its balance sheet, according to CNBC.

Five9, the San Ramon, California-based company that offers a communication platform to call centers, presented an attractive target to Zoom, which had said that acquiring Five9 would accelerate Zoom’s growth and give it access to more business clients in the $11.5 billion cloud contact center market.

The deal, if completed, would have been Zoom’s biggest purchase to date, and this year’s second-largest tech buyout, second only to the agreement by Square to buy Australia’s Afterpay for $29 billion, at a premium of 30%.

The China Factor

The deal also ran into trouble after suggestions that Zoom has links to China. Zoom says more than half of its employees are in the US, but that a “sizable” number of research and development (R&D) workers are in China. Zoom’s CEO, Eric Yuan, was born in China and became a naturalized US citizen in 2007.

The deal had attracted the attention of the DOJ, which was reviewing the agreement because of the potential for foreign participation and the implications of the transaction on national security interests given the tensions between Washington and Beijing over cybersecurity issues.

Zoom also drew notice last year for blocking online meetings related to activists commemorating the 1989 Tiananmen Square crackdown by China. Zoom had temporarily suspended the accounts of three US or Hong Kong-based activists at the request of Beijing, with Zoom saying later it would stop honoring requests from the Chinese government that affect people outside of mainland China. Zoom’s reputation, however, was damaged by the incident.

Moving Forward

In a separate blog post the same day the deal collapsed, Zoom CEO Yuan said his company still plans to release its own cloud-based contact center solution in early 2022, to be called the Zoom Video Engagement Center. The new solution, Yuan remarked, is being built with “the same scalability and trusted architecture that has made Zoom the platform of choice for businesses around the world.”

Five9, he said, presented an attractive means to bring Zoom customers an integrated contact center offering. “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.” Five9, meanwhile, will remain an independent entity.