M&A

Activist Calls for Zendesk to Scrap Momentive Deal

Zendesk should not waste "more time and more shareholder capital on a value-destroying acquisition that is destined to be rejected by shareholders."
Matthew HellerJanuary 6, 2022

Activist investor Jana Partners has stepped up its campaign to derail customer-service platform Zendesk’s proposed acquisition of the parent of web-survey company SurveyMonkey.

Jana, which owns a large stake in Zendesk, first objected in November to the acquisition of Momentive Global, saying it “lacks financial merit, has questionable strategic logic, and introduces a high degree of execution risk for Zendesk shareholders.”

In a Jan. 3 letter to the Zendesk, Jana said the company’s Dec. 6 proxy statement seeking shareholder approval of the deal had raised new concerns that “make it even more apparent that the proposed acquisition is the wrong choice for Zendesk and its shareholders.”

“Rather than wasting more time and more shareholder capital on a value-destroying acquisition that is destined to be rejected by shareholders, the board should immediately terminate the transaction and pivot to focusing on far more promising avenues to resolve Zendesk’s growing discount to fair value,” the letter urged.

Zendesk agreed to in October to buy Momentive in an all-stock deal that at the time was worth about $4.1 billion. The firms have said that by combining, they could help companies get better feedback from customers.

Momentive shareholders would receive 0.225 Zendesk share for each Momentive share but the deal is now worth $22.1o per share compared with $28 when it was announced.

Citing the proxy statement, Jana said in its letter that the deal “appears to be a reactive and impulsive decision, made only in response to outreach by Momentive’s advisers as part of a broad sale process at the end of August 2021, rather than the product of a well-thought-out strategy.”

Additionally, as disclosed in the proxy, “the Momentive acquisition is justified by assuming the full realization of revenue synergies that, if achieved, would add a meager 1% to Zendesk’s topline growth rate.”

“It is incomprehensible how this de minimis potential benefit to growth and value could justify the monumental integration risk of executing Zendesk’s first-ever large acquisition (by a factor of ~50x) with a management team with new/unproven executives,” Jana said.

Zendesk and Momentive have each separately scheduled a special meeting of their respective stockholders to be held on February 25, 2022, to approve the transaction.