Light Street Capital Proposes Superior Alternative to Zendesk's Proposed Transaction with Hellman & Friedman and Permira

Rhea-AI Summary

Light Street Capital, managing over 2% of Zendesk shares, announced its intention to vote against the proposed merger with Hellman & Friedman and Permira, claiming it undervalues the company. The firm criticized Zendesk's Board for blocking shareholder rights and mismanagement, including an unsuccessful acquisition attempt in 2021 and delays in the annual meeting. Light Street proposed an alternative involving a $2 billion preferred equity investment and a $5 billion tender offer at $82.50 per share, offering a 6.5% premium over the proposed transaction price.

Positive

• Light Street's alternative proposal includes a $5 billion tender offer at $82.50 per share, which is a 6.5% premium over the $77.50 proposed price.
• The proposal aims to recapitalize Zendesk with a total of $4 billion in preferred equity and debt, potentially enhancing shareholder value.
• Light Street's plan includes an open market share buyback program, allowing existing shareholders to maintain equity ownership.

Negative

• Light Street's criticism highlights significant governance issues at Zendesk, including the Board's prior rejection of an unsolicited bid valued at $127-132 per share.
• The Board's obstruction of shareholder rights, including delays in the annual meeting, raises concerns about transparency and accountability.

Declares Intention to Vote AGAINST Inadequate Proposed Transaction, Which Materially Undervalues Zendesk to the Detriment of Company Shareholders

Outlines Significant Concerns Over Zendesk Board's Obstruction of Shareholder Rights and Mismanagement Causing the Destruction of Shareholder Value 

Calls on Zendesk Board to Carefully Consider Light Street's Superior Proposal for the Benefit of the Company and Its Shareholders

Full Details of Light Street's Alternative Proposal for Zendesk Available at www.lightstreet.com/zen

PALO ALTO, Calif., Aug. 29, 2022 /PRNewswire/ -- Light Street Capital Management, LLC ("Light Street" or the "Firm"), which manages funds that own more than two percent of the outstanding shares of Zendesk, Inc. (NYSE: ZEN) ("Zendesk" or the "Company"), yesterday sent a letter to the Zendesk Board of Directors (the "Board") declaring the Firm's intent to vote AGAINST the Company's proposed transaction with affiliates of funds advised by Hellman & Friedman LLC and Permira Advisers LLC (the "Proposed Transaction") and proposing an alternative and superior path forward for the Company and its shareholders.

In the letter, Light Street expresses its concern that the Proposed Transaction materially undervalues Zendesk and is detrimental to shareholder interests.  The Firm also outlines recent examples of active obstruction of shareholder rights and destruction of shareholder value by the Board, including the ill-conceived attempt to acquire Momentive in October, 2021, which received support from less than 10% of Zendesk shareholders, the February 2022 rejection of an unsolicited bid to acquire the Company for $127-$132 per share, and the months-long delay of the Company's annual shareholder meeting, preventing shareholders from exercising their shareholder rights to select an alternative slate of Board nominees. 

In light of these actions and the undervaluation of the Company in the Proposed Transaction, Light Street proposes an alternative path forward for the Company, which it believes will provide a superior outcome for all stakeholders and should therefore be deemed a Superior Proposal by Zendesk's Board of Directors. 

Specifically, Light Street Proposes:

• A recapitalization of the business consisting of a $2 billion preferred equity investment arranged by Light Street and a $2 billion incremental debt facility;
•  A $5 billion Company-led tender offer at $82.50 per share for shareholders who would like to sell their shares, representing a 6.5% premium to the $77.50 per share contemplated in the Proposed Transaction;  
• The authorization of an open market share buyback program utilizing remaining proceeds (if any) that are not used in the tender, providing existing fundamental shareholders the ability to maintain their equity ownership;
• The revision and issuance of a complete operating plan considering current business conditions with a renewed focus on driving significant operating margin expansion;
• The expansion of the Zendesk Board to ten seats, including the selection of five qualified Directors by Light Street and other preferred equity shareholders; and
• The formation of a special committee of the Board to conduct a thorough process to identify and hire a successor Chief Executive Officer.

The full text of the letter delivered to the Zendesk Board, including additional detail regarding Light Street's alternative proposal to Zendesk can be found at www.lightstreet.com/zen.

About Light Street Capital Management 

Founded in 2010, Light Street Capital Management, LLC is an investment management firm based in Palo Alto, California.  The firm invests globally in technology businesses across public and private markets. 

Important Information

Light Street, together with the other participants named herein, intends to file a proxy statement with the Securities and Exchange Commission (the "SEC") to be used to urge stockholders of Zendesk, Inc. (the "Company") to vote on the Company's proxy card "AGAINST" the proposed merger of the Company with affiliates of funds advised by Hellman & Friedman LLC and Permira Advisers LLC, and other Company proposals, at the upcoming special meeting of stockholders of the Company. 

LIGHT STREET STRONGLY ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ LIGHT STREET'S PROXY STATEMENT AND OTHER PROXY MATERIALS AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. SUCH PROXY MATERIALS  AND ANY OTHER RELEVANT DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT WWW.SEC.GOV.   IN ADDITION, THE PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.   REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS' PROXY SOLICITOR.

STOCKHOLDERS OF THE COMPANY ARE ALSO ADVISED TO READ THE DEFINITIVE PROXY STATEMENT, DATED AUGUST 8, 2022, AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF PROXIES BY THE COMPANY FROM ITS STOCKHOLDERS FOR USE AT THE COMPANY'S UPCOMING SPECIAL MEETING OF STOCKHOLDERS, BECAUSE THEY CONTAIN IMPORTANT INFORMATION. A DEFINITIVE PROXY STATEMENT HAS BEEN MAILED TO STOCKHOLDERS OF THE COMPANY AND IS ALSO AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT WWW.SEC.GOV. 

Participant Information

The participants in the proxy solicitation are anticipated to be Light Street, Light Street Mercury Master Fund, L.P., Light Street SPV7, L.P., Light Street Tungsten Master Fund, L.P., Light Street Halo, L.P. and Glen Kacher.

As of the date hereof, Light Street Mercury Master Fund, L.P. ("Mercury") directly owns 1,257,571 shares of common stock, par value $0.01 per share, of the Company ("Common Stock"), Light Street SPV7, L.P. ("SPV7") directly owns 1,260,549 shares of Common Stock, Light Street Tungsten Master Fund, L.P. ("Tungsten Master Fund") directly owns 174,400 shares of Common Stock, and Light Street Halo, L.P. ("Halo") directly owns 33,721 shares of Common Stock.  Light Street, as the investment adviser and general partner of Mercury, SPV7, Tungsten Master Fund and Halo, exercises voting and investment power over the Common Stock held for the account of Mercury, SPV7, Tungsten Master Fund and Halo, and as such may be deemed to beneficially own the 2,726,241 shares of Common Stock owned in the aggregate by Mercury, SPV7, Tungsten Master Fund and Halo.  Mr. Kacher, as the Chief Investment Officer of Light Street, may be deemed to beneficially own the 2,726,241 shares of Common Stock owned in the aggregate by Mercury, SPV7, Tungsten Master Fund and Halo.

Forward-looking Statements

Certain statements contained in this letter, and the documents referred to in this letter, are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives including the Light Street proposal set forth herein. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance or activities and are subject to many risks and uncertainties. Due to such risks and uncertainties, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements, including the facts that the Light Street proposal set forth herein is non-binding and subject to due diligence and the execution of mutually acceptable definitive documents, may be rejected by the Company, and/or may be subject to certain closing conditions including stockholder approval and therefore such proposal may not be consummated. Forward-looking statements can be identified by the use of the future tense or other forward-looking words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "should," "may," "will," "objective," "projection," "forecast," "management believes," "continue," "strategy," "position" or the negative of those terms or other variations of them or by comparable terminology. 

Important factors that could cause actual results to differ materially from the expectations set forth in this letter include, among other things, the factors identified under the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2021, as amended, and under the section entitled "Forward-Looking Statements" in the Company's Definitive Proxy Statement, filed with the SEC on August 8, 2022. Such forward-looking statements should therefore be construed in light of such factors, and Light Street is under no obligation, and expressly disclaim any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

Information Regarding Any Proposed Transaction

In furtherance of the Light Street proposal and subject to future developments, Light Street (and, if a negotiated transaction is agreed, the Company) may file one or more registration statements, proxy statements, tender offer statements or other documents with the SEC. This letter is not a substitute for any proxy statement, registration statement, tender offer statement, prospectus or other document Light Street and/or the Company may file with the SEC in connection with any proposed transaction.

INVESTORS AND SECURITY HOLDERS OF THE COMPANY ARE URGED TO READ ANY SUCH PROXY STATEMENT(S), REGISTRATION STATEMENT, TENDER OFFER STATEMENT, PROSPECTUS AND/OR OTHER DOCUMENTS FILED WITH THE SEC CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE AS THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT A PROPOSED TRANSACTION. Any definitive proxy statement(s) or prospectus(es) (if and when available) will be mailed to stockholders of the Company.  Investors and security holders will be able to obtain free copies of these documents (if and when available) and other documents filed with the SEC by Light Street and/or the Company through the SEC's web site at www.sec.gov.

This letter is neither a solicitation of a proxy nor a substitute for any proxy statement or other filings that may be made with the SEC.  Nonetheless, Light Street and/or its directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of any proposed transaction.  Additional information regarding the interests of such potential participants may be included in one or more registration statements, proxy statements, tender offer statements or other documents filed with the SEC if and when they become available. These documents (if and when available) may be obtained at no charge on the SEC's website at www.sec.gov.

Notice to Investors

Notwithstanding anything stated herein, Light Street reserves the right to sell shares of the Company in the future in connection with redemption requests by investors in its affiliated funds or in the event the Company's Board of Directors is not responding, in the opinion of Light Street, appropriately to the Light Street proposal and it is in such funds' interests to do so.

Media Contacts

ASC Advisors
Steve Bruce / Taylor Ingraham
sbruce@ascadvisors.com / tingraham@ascadvisors.com 
{203} 992-1230

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SOURCE Light Street Capital Management

FAQ

What is Light Street Capital proposing for Zendesk (ZEN)?

Light Street Capital is proposing a $5 billion tender offer at $82.50 per share and a total recapitalization of $4 billion.

Why does Light Street Capital oppose Zendesk's proposed transaction?

Light Street argues the proposed transaction severely undervalues Zendesk and is detrimental to shareholder interests.

What concerns did Light Street Capital raise about Zendesk's Board?

They criticized the Board for mismanagement and obstructing shareholder rights, such as delaying the annual meeting.

When did Light Street Capital announce its proposal concerning Zendesk?

The announcement was made on August 29, 2022.