Zendesk (ZEN) Outlines Superior Value Provided by Proposed Transaction with Consortium Led by Hellman & Friedman and Permira

Zendesk, Inc. (NYSE: ZEN) (“Zendesk” or the “Company”) today released an investor presentation that provides significant additional information to stockholders in connection with the proposed transaction with the consortium led by Hellman & Friedman and Permira (the “Consortium”).

The Company stated: “Our Board believes that the acquisition by the Consortium 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. To ensure full transparency and help investors make an informed decision, we disclosed certain recent monthly performance metrics so that Zendesk stockholders are able to understand that the standalone alternative, under any structure, carries material risk for Zendesk stockholders given Zendesk-specific performance challenges, as well as a challenging market and macroeconomic environment. The Board conducted a thorough and extensive strategic review process before determining to enter into the Consortium transaction, which the Board believes offers immediate and certain value that is superior to the standalone alternatives, including the recapitalization proposal from Light Street Capital.”

The presentation notes the following:

• Zendesk’s business momentum continues to deteriorate, both operationally and financially, with preliminary net bookings having sequentially declined for six months and having declined 63% year-over-year since the announcement of the Consortium transaction (June through August), resulting in ARR growth of only $2 million between June and the end of August 2022.
• The Board engaged in an extensive strategic review process that included several months of engagement with 26 prospective acquirors (including 16 strategics and 10 financial sponsors). Process participants were heavily focused on the net bookings trends described above. The Consortium proposal represented the only final, fully-financed proposal received as a result of the process.
• The Board considered feedback from stockholders, including JANA Partners, which indicated support for pursuing a transaction that resulted from a robust strategic review process. JANA, when provided information about the process and Consortium transaction under a confidentiality agreement, indicated that it would not oppose the transaction.
• During the process, Zendesk’s business performance resulted in a much sharper reduction in near-and long-term outlook relative to the rest of the market, with the Company’s June 2022 projections implying a 9% decrease in growth relative to the March 2022 projections. Notably, software companies that have recently provided guidance between 0% to 5% below Street expectations have seen reductions in value of between 17% and 42%.
• The Company has underperformed its projections, generating $65MM less ARR than the assumptions underlying the revised June 2022 projections to-date. This shortfall creates downside risk for the June 2022 revenue projections and associated revenue growth rates for FY22 and FY23. Moreover, it validates the reasonableness of the Board utilizing the revised June 2022 projections, which were lower than the prior March 2022 projections, to compare the Consortium transaction to the standalone alternative.
• The Company believes the performance of comparable cloud software indices and companies implies a current hypothetical unaffected stock price for Zendesk well below the value of the Consortium transaction, with significant potential downside relative to peers given Zendesk’s slowing momentum and the trading multiples of software companies that have experienced similar decelerations in growth.

The Company is continuing to advance toward completing the transaction with the Consortium, subject to customary closing conditions. A special meeting of Zendesk stockholders to vote on the transaction will be held on September 19, 2022 (the “Special Meeting”).

The Board unanimously recommends that stockholders vote “FOR” the Consortium transaction.

Stockholders’ votes are very important, regardless of the number of shares owned. To complete the Consortium transaction, the merger agreement must be adopted by the affirmative vote of the holders of at least a majority of the outstanding shares of Zendesk common stock entitled to vote at the Special Meeting.

If stockholders have any questions or need assistance voting their shares, please contact Zendesk’s proxy solicitor:

MACKENZIE PARTNERS, INC.

1407 Broadway, 27th Floor

New York, NY 10018

Toll-Free: +1 (800) 322-2885

Email: [email protected]

Advisors

Qatalyst Partners and Goldman Sachs & Co. LLC are serving as financial advisors to Zendesk. Wachtell, Lipton, Rosen & Katz is serving as Zendesk’s legal advisor.

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