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RingCentral (RNG) Approaches 8x8 (EGHT) About Takeover as Investors Press for Consolidation - Source

November 21, 2022 12:03 PM EST

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RingCentral (NYSE: RNG) has approached 8x8, Inc. (NYSE: EGHT) about a potential takeover, according to a source. RingCentral is said to be working with an investment bank to evaluate a potential transaction. Today’s news follows a report from StreetInsider.com last week that 8X8 was approached by a strategic buyer.

With shares of 8x8 down 75% and RingCentral down 80% year-to-date, investors have been calling for consolidation in the sector, a separate source relayed. However, it is unclear if the 8x8 board of directors would be open to a deal with its share price depressed.

In addition to the share price reality, both companies have substantial debt burdens. 8x8 has long-term debt of about $517 million, versus its approximate $475 million equity market cap. RingCentral has about $1.64 billion in long-term debt versus a $3.5 billion market cap.

While 8x8 has a notable debut burden, it has been busy extending maturities. The Company recently retired approximately $404 million in aggregate principal amount of its convertible notes due in 2024 in exchange for the issuance of $202 million new senior convertible notes due in 2028 and $182 million in cash out of the proceeds from a $250 million term loan due in 2027. The company also has been buying back its stock.

Although 8x8’s stock has been in the doldrums, the business is still performing okay. In its most recent quarter, the company posted total revenue growth of 24% to $187.4 million while non-GAAP operating profit surged 368% to $9.1 million. Non-GAAP gross margin was above 70% in the quarter as the company has had an increased emphasis on profitability and cash flow generation. Looking at the current quarter, the company sees total revenue up 19%, and for the fiscal year 2023, they see total revenue up 18%.

Given the debt loads of both companies, a cash deal may be hard for investors to swallow. However, a stock-for-stock deal could be one option being evaluated.

RingCentral said it does not comment on rumors or speculation. 8x8 has not responded to a request to comment on the rumor.

By StreetInsider.com Staff

(updated 1:00PM ET with RingCentral response)



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