(Bloomberg) — The parent of polling software company SurveyMonkey revealed it had interest from at least two other potential buyers before deciding to pursue an all-stock $4 billion takeover by Zendesk Inc.
Momentive Global Inc. made the disclosure in a regulatory filing Monday. The news triggered the ire of Legion Partners Asset Management, which has been pushing for Momentive to abandon the deal. The activist investor said for the first time that it’s prepared to nominate several directors to the company’s board.
Shares in Momentive rose 13% to $21.77 at 1:43 p.m. Tuesday in New York, while Zendesk was up 6.3% to $104.06. Shares of both companies are still down about 13% since the deal was announced.
Legion, which owns a 1.4% stake in Momentive, wrote in a letter to Momentive directors Monday that it believes the strategic review process was “dubious” and that management engineered a deal with Zendesk at the expense of stockholders.
“As demonstrated by the violent reaction in both Zendesk and Momentive shares following the merger announcement, we question how the board and all financial advisers involved could have considered Zendesk’s all-stock bid as the superior proposal,” Legion managing directors Chris Kiper and Ted White wrote in the letter.
Alternative Deal
Legion reiterated its call to have one of its senior analysts, Sagar Gupta, appointed to the board.
“We urge you to explore a path towards terminating the proposed merger at no additional cost to Momentive stockholders,” Legion wrote. “Subsequently, an alternative transaction that objectively maximizes stockholder value should be considered.”
One of the suitors for Momentive, referred to as Party A in the filing, had put forth a non-binding proposal to acquire the company for $27 a share in cash, and indicated it might bump its offer by 25 cents. Another, referred to as Party D, indicated that it might have been willing to increase its offer before Momentive’s board decided to sell to Zendesk.
Another, known as Party H, said it might be interested in partnering with another financial sponsor to acquire the company.
Instead, the Momentive board decided to accept a $28-a-share all-stock bid from Zendesk, which has dropped in value substantially after a selloff of shares in both companies.
Private Equity Suitors
In all, Momentive said it spoke to 18 potential strategic or financial buyers during the sale process. Six strategics and two financial sponsors decided not to proceed, the filing shows. Private equity firm Permira was among the final bidders for the company, Bloomberg News reported last month.
The multitude of potential buyers could pose a challenge for Zendesk and Momentive to close the deal, which requires the approval of shareholders at both companies. Both Zendesk and Momentive have been under pressure by some of their investors to abandon the deal after their share prices tumbled following the Oct. 28 announcement.
Momentive said in the filing Monday that it decided to proceed with the transaction because of the uncertainty around the other offers.
“Following a careful review of all proposals, the board determined that a transaction with Zendesk was the most valuable path for Momentive shareholders, given the opportunity to share in the upside of the combined company,” the company said in a statement Tuesday. “The board and management team intend to continue engaging constructively with all shareholders.”
Investor Opposition
Under the terms of the deal, Momentive shareholders will receive 0.225 shares of Zendesk for every Momentive share they own. That translated to about $28 a share at the time of the announcement in October. The subsequent selloff has lowered the value of the transaction to about $22 a share, or $3.3 billion, based on Monday’s closing price.
Another activist investor, Jana Partners, which said it owns a stake in Zendesk, has also demanded the company abandon the deal, arguing last month in a letter to the board that the proposal lacks financial merit, and has already wiped out $3 billion in equity value. The New York-based firm argued there are far better ways for the company to create shareholder value.
(Updates with company’s comment in 14th paragraph)
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