Zoom’s $ 14.7 billion Five9 deal comes under US foreign relations scrutiny

Updates from Zoom Video Communications Inc

The U.S. Department of Justice has raised national security concerns over Zoom Video Communications’ planned takeover of cloud-based software company Five9, calling for a secondary review of the provider’s $ 14.7 billion deal. web conference.

In a letter to the Federal Communications Commission, the department’s national security division said an interagency committee tasked with assessing “foreign ownership” in the US telecommunications industry should consider whether the purchase of Zoom ” constitutes a risk to national security or the interests of US law enforcement agencies. ”

The FCC, which is the main US telecommunications regulator, has reviewed the deal, but a committee review would add another level of regulatory involvement.

Zoom’s reliance on a large developer base in China has long raised questions about China’s potential influence on its operations. The San Jose, California-based company has maintained that none of its customers’ data travels through its servers in the Asian country, although it admitted last year that it mistakenly routed some calls through China.

One of its leaders in China also cooperated with Chinese authorities to block videoconferences commemorating the 1989 protests in Tiananmen Square, even though they were hosted in the United States. Both cases became the subject of DoJ investigations.

“The United States Department of Justice believes that such a risk may be heightened by the foreign participation (including foreign relations and ownership) associated with the request, and a review by the committee is required to assess and make an appropriate recommendation on how [the FCC] should rule on this request, ”the justice ministry said in a letter dated August 27.

The DoJ’s letter comes as U.S. officials in areas such as antitrust laws, foreign investment and securities regulation take a tougher stance on Chinese investments in U.S. companies, amid cooling relations between Washington and Beijing.

Zoom said, “The acquisition of Five9 is subject to certain telecommunications regulatory approvals. We have filed with the various applicable regulatory bodies, and these approval processes are proceeding as planned. We still expect to receive the regulatory approvals required to complete the transaction in the first half of 2022. ”

Five9, based in San Ramon, Calif., Declined to comment.

Zoom’s agreement to buy Five9, announced in July, would mark the company’s first major acquisition. The all-stock transaction valued the shares of Five9 at $ 200.28, with investors expected to receive 0.5533 Class A common shares of Zoom.

However, the fall in Zoom’s stock price and concerns about its outlook after the lockdown have cast a shadow over the deal. The company’s stock price has fallen 23% since the transaction was announced and now values ​​Five9 at $ 154 per share, significantly lower than its current price of $ 170.

Institutional Shareholder Services, the influential proxy advisory firm, urged Five9 shareholders to vote against the deal, citing concerns over the company’s growth as pandemic social distancing measures loosen .

“The agreement on all actions exposes [Five9] shareholders to a more volatile stock whose growth prospects have become less attractive as the company moves towards a post-pandemic environment, ”ISS wrote in a report released last week.

The proxy advisor also warned of the political risks associated with Zoom’s “substantial operations in China”.

News of the Justice Department’s letter was first reported by The Wall Street Journal.

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