(Bloomberg) — Activist investor Legion Partners Asset Management has vowed to fight Momentive Global Inc.’s plan to sell itself to Zendesk Inc. in a deal that valued the parent company of SurveyMonkey at about $4 billion when it was announced last week.
Legion, which owns a 1.4% stake in Momentive, said the offer undervalues the company and that it has serious concerns about the quality of the sales process. Momentive’s board is in need of a “significant upgrade,” the investor said.
“Legion Partners is strongly against the proposed acquisition of Momentive by Zendesk and is willing do to whatever is necessary to put an end to this deal,” the firm said in an emailed statement.
Momentive responded that it undertook a robust and comprehensive review designed to enhance shareholder value, and it determined the deal was the best outcome for its investors.
“The combination will provide the opportunity for Momentive shareholders to participate in the upside potential of a stronger and larger company that will be uniquely positioned to help customers drive meaningful action,” the company said Monday in an emailed statement. “We are committed to closely engaging with our shareholders to ensure they recognize the significant value inherent in the combination.’
A representatives for Zendesk didn’t respond to requests for comment.
Zendesk said Oct. 28 it had reached an agreement to acquire Momentive. Under the terms of the deal, Momentive shareholders would receive 0.225 shares of Zendesk stock for each of their Momentive shares, which represented about $28 a share at the time.
Since then, both stocks have plummeted after a series of analyst downgrades. Momentive’s shares fell about 8% on Oct. 29, the day after the deal was announced, while Zendesk dropped more than 14%. The transaction is now valued at about $3.4 billion, according to data compiled by Bloomberg.
The transaction is subject to several conditions, including a shareholder vote at both companies, according to a filing. There is also a $150 million break fee tied to it.
Investor Concerns
Legion isn’t the only shareholder who says the deal undervalues the company. Oleg Karmanov, a junior portfolio manager at Cannell Capital, said he also had concerns about the price and the process under which the company was sold. Cannell Capital held a roughly 0.6% stake in Momentive as of June 30, according to Bloomberg data.
“The market has said it is worried about this transaction,” Karmanov said in an interview, noting that the current offer sits at about the 30-day average price for Momentive shares. “Something isn’t right here.”
In Karmanov’s view, he said, the company either didn’t take the best offer on the table or didn’t shop itself around enough to get a competitive auction going.
Zendesk has said that it sees value in Momentive’s market research and insights products. The two companies are based near each other in the San Francisco area.
Strategic Review
In a letter to the board in September, Legion called on Momentive to start a strategic review, including a potential sale of the company. Chris Kiper, Legion’s managing director, said in an investor presentation last month that he believed there could be several interested buyers, ranging from Oracle Corp. to Salesforce.com Inc., as well as several private equity players.
Legion said Monday it also had issues with how the Zendesk deal was structured and “serious concerns” about the review process that led to “this clearly flawed decision.”
“We are increasingly disappointed with Momentive’s board of directors and their continued disregard toward shareholders, as well as their own fiduciary duties,” Legion said. “Given these recent developments, we believe changes that will significantly upgrade Momentive’s board have never been more urgently needed.”
Los Angeles-based Legion Partners has agitated in recent years for changes at other companies, including Bed Bath & Beyond Inc., Kohl’s Corp. and Genesco Inc.
(Updates with Momentive response in fourth paragraph)
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