A prominent shareholder advisory firm has come out in support of Zendesk Inc.’s takeover by a group of buyout firms, arguing an alternative proposal by Light Street Capital Management last month to keep the company independent lacked sufficient detail.
(Bloomberg) — A prominent shareholder advisory firm has come out in support of Zendesk Inc.’s takeover by a group of buyout firms, arguing an alternative proposal by Light Street Capital Management last month to keep the company independent lacked sufficient detail.
Institutional Shareholder Services Inc. noted in a report Tuesday that the current proposal represents a “significant discount to historical trading levels.” But ISS argued that while it may be frustrating to shareholders who resoundingly rejected Zendesk’s attempt to acquire Momentive Global Inc. earlier this year “only to see the company subsequently sold at a low point in its valuation,” it still remains the better option.
“In light of the certainty of the value inherent in the transaction and the significant downside risk of non-approval and the standalone option, along with the lack of detail and the execution risk inherent in Light Street’s alternative proposal, support for the proposed transaction is warranted,” ISS said.
In June, the software maker agreed to be acquired by a group of buyout firms led by Hellman & Friedman and Permira for about $9.5 billion. A few weeks ago, Light Street Capital Management, which owns more than 2% of Zendesk, said it would vote against that takeover, and proposed an alternative strategy that included a $4 billion investment to keep the company independent.
San Francisco-based Zendesk, which makes customer service software, has struggled to keep business momentum afloat. The company agreed to buy SurveyMonkey parent Momentive last year for about $4 billion, a deal that investors balked at and sent shares plunging. Zendesk nixed the takeover and put itself in play in February but struggled to find a buyer. It planned to remain independent until the deal with Hellman and others came through in early summer.
In an investor presentation on Tuesday, Zendesk said the board believes the acquisition by the consortium led by Hellman & Friedman and Permira “is the best path forward for Zendesk and our stockholders. It is important for stockholders to understand the challenges facing the Zendesk business, including the significant deceleration of key leading indicators and measures of Zendesk’s business performance.”
The company said that the alternative of remaining independent “carries material risk” for stockholders, “given Zendesk-specific performance challenges, as well as a challenging market and macroeconomic environment.”
Zendesk shares were little changed at $76.64 in New York.
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