A U.S. government committee is reviewing Zoom’s agreement to acquire cloud contact center software company Five9 for $14.7 billion on national-security grounds.
According to a letter dated Aug. 27, and posted on the Federal Communications Commission’s website, the FCC was asked to refer the case to the Committee for the Assessment of Foreign Participation in the United States Telecommunications Service Sector. Attorney General Merrick Garland, head of the U.S. Department of Justice, is chair of the committee.
Zoom announced the deal with Five9 in July, marking the video-chat company’s first billion-dollar-plus acquisition. Zoom ballooned in value during the pandemic and, with Five9’s technology, is trying to expand into adjacent markets.
Zoom is based in San Jose, California, and founder and CEO Eric Yuan, a native of China, is a U.S. citizen. The company has a significant research and development hub in China, and last year House Speaker Nancy Pelosi of California referred to Zoom as “a Chinese entity” during an MSNBC interview.
“USDOJ believes that such risk may be raised by the foreign participation (including the foreign relationships and ownership) associated with the application, and a review by the Committee is necessary to assess and make an appropriate recommendation as to how the Commission should adjudicate this application,” wrote David Plotinsky of the Justice Department, in the letter to the FCC.
Zoom sill expects the acquisition to close in the first half of 2022, a company spokesperson told CNBC in an email.
“We have made filings with the various applicable regulatory agencies, and these approval processes are proceeding as expected,” the representative said. A Five9 spokesperson declined to comment.
The Wall Street Journal reported on the letter to the FCC earlier on Tuesday.
The committee that sent the letter was formalized in 2020 through an executive order by former President Donald Trump. Formerly known as Team Telecom, the committee provides advice to the FCC regarding potential threats to telecommunications networks. It’s separate from the Committee on Foreign Investment in the United States (CFIUS), which has blocked Chinese entities from buying U.S. companies.
In its latest earnings report in August, Zoom acknowledged that the business could face risks related to Five9’s operations in Russia.
“We will need to manage the international operations of Five9, including engineering personnel and operations in Russia, which may pose regulatory, economic and political risks as well as additional challenges if the relationship between Russia and the United States worsens significantly, or if either Russia or the United States imposes or implements new or augmented economic sanctions, supply chain restrictions or other restrictions on doing business,” Zoom said in the report.
Zoom executives said they expect 31% revenue growth in the current quarter, down from from growth above 300% last year. Five9 reported 44% growth in the most recent quarter.