(Bloomberg) — Zendesk Inc.’s plan to acquire SurveyMonkey parent Momentive Global Inc. was dealt a blow with two prominent shareholder advisory firms arguing the software company’s investors should vote against the deal.
Glass Lewis & Co. urged investors in both Zendesk and Momentive to reject the deal so that the companies could pursue other alternatives. Institutional Shareholders Services Inc. also urged Zendesk investors to vote the deal down. But in light of the potential downside risk of rejecting the transaction, ISS said Momentive shareholders should vote in favor of it.
“A fair read of the primary materials suggests Zendesk entered Momentive’s process late, completed diligence over a questionably brief period and offered a wealth of undervalued equity,” Glass Lewis said in its recommendation Friday.
Zendesk agreed to buy Momentive in October in an all-stock deal valued at roughly $4 billion at the time. The transaction was met with a dramatic sell-off in both companies as investors balked at the merits of the tie-up. The deal was valued at $3.4 billion on Thursday prior to Zendesk acknowledging it had been approached about a potential takeover.
A representatives for Zendesk wasn’t available for comment. Momentive said in a statement it was pleased that ISS urged support from its shareholders for the deal and the process that led to it.
Takeover Offer
Zendesk acknowledged an unsolicited offer from a group of private equity firms, that was rejected by its board, according to a statement Thursday. The firms included Hellman & Friedman, Advent International and Permira, Bloomberg News reported.
Glass Lewis said in light of the inbound interest and the sell-off of Zendesk’s shares after the deal was announced, it appeared investors could “benefit from a path forward that does not involve a combination with Momentive.”
ISS argued that the projected benefits of the deal were limited for Zendesk investors, as were the details for how those synergies would be achieved.
“The shareholders publicly opposing the transaction have raised valid concerns that are bolstered by the market’s sharply negative reaction to the transaction’s announcement and a solid standalone narrative,” ISS said.
‘Wrong Path’
Activist investor Jana Partners called on Zendesk’s board to abandon the deal in a letter this week arguing it was the “wrong path for the company.” Another large Zendesk investor, Janus Henderson Group Plc., also opposes the plan.
Legion Partners Asset Management has called on Momentive to terminate the deal, arguing the company neglected its fiduciary duties. The activist investor said it was prepared to nominate directors for Momentive’s board if the company didn’t walk away from the deal.
Glass Lewis argued that Momentive’s management has made “unconvincing” arguments about the merits of the transaction, and urged shareholders to oppose the deal in favor of a “structural reset.” It said from there, the company could reconsider its path forward, including as a standalone entity.
ISS disagreed. “In light of the potential downside risk of rejecting the transaction, and the potential upside of owning 22% of the leading pure play cloud customer support company,” it makes sense to support the acquisition, it said.
(Updates with Momentive’s comment in fifth paragraph)
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