By Aaron Tilley
Salesforce.com Inc. agreed to buy messaging company Slack
Technologies Inc. in a $27.7 billion deal that shows how the
biggest players in cloud computing are racing to add muscle amid
the pandemic's remote-work boom.
The cash-and-stock deal, announced Tuesday, is the biggest move
yet by Salesforce Chief Executive Marc Benioff, a pioneer in
selling subscriptions for software run on remote servers, to turn
the company he co-founded 21 years ago into a broad-reaching
powerhouse in tech tools for businesses. The deal is almost twice
as large as Salesforce's largest acquisition so far and would turn
the combined company into a more formidable competitor to Microsoft
Corp. and Google parent Alphabet Inc. The Wall Street Journal
previously reported Salesforce and Slack were in advanced deal
talks.
The combination also brings together two of the tech industry's
highest profile CEOs -- people who have made a career of taking on
Silicon Valley icons. Mr. Benioff has positioned himself as a
prominent voice in U.S. business, using venues like the World
Economic Forum in Davos, Switzerland, to champion causes and
burnish his profile. He set up Salesforce with a pledge of
corporate giving and bought himself an even larger platform with
his acquisition of Time Magazine two years ago.
Slack CEO Stewart Butterfield has been one of the loudest voices
arguing that companies need to revamp how they use technology. He
co-founded Slack, which grew out of a gaming company called Tiny
Speck, and pitched its product as an alternative to office email.
It quickly took off among developers in technology companies when
it became publicly available in 2014. He is expected to join
Salesforce and continue to run Slack as a unit of Salesforce after
the deal's close, the companies said.
Salesforce's planned Slack acquisition is another sign that
companies are betting some of the changes in the workplace in
recent months will outlast the pandemic. "We really see the world
as fundamentally having shifted," Salesforce operating chief Bret
Taylor told analysts. "Slack is really the system of engagement for
every employee, every partner and for every customer
interaction."
The purchase, which still has to clear Slack shareholder and
regulatory approval, would underpin Mr. Benioff's effort to move
Salesforce beyond its core product, which helps companies manage
their customer relationships, to providing the software tools that
businesses need for a swath of their day-to-day operations.
The deal also opens a new front in Salesforce's battle with much
larger rival Microsoft, which has been pushing to be the go-to
software vendor for businesses, offering a range of applications
from data storage to video communications. The Redmond, Wash.,
company introduced its Teams software suite in 2016 with Slack-like
chat collaboration features.
"Together, Salesforce and Slack will shape the future of
enterprise software and transform the way everyone works in the
all-digital, work-from-anywhere world," Mr. Benioff saidt.
The software-services industry is rapidly growing. It is
expected to top $140 billion in annual spending in 2022, up around
37% from last year's figure, according to research firm Gartner
Inc.
Early in the pandemic, Microsoft Chief Executive Satya Nadella
said businesses were overhauling how they operate. "We've seen two
years' worth of digital transformation in two months," he told
analysts.
Salesforce and Slack, both based in San Francisco have long
competed with Microsoft. In 2016, Salesforce, after it lost out to
its larger rival in buying LinkedIn Corp., urged regulators to
examine the proposed deal on antitrust grounds. The transaction
ultimately passed regulatory scrutiny. And this summer, Slack filed
a complaint with the European Union over alleged antitrust behavior
by Microsoft in using its market dominance to push Teams.
"They want to kill us," Mr. Butterfield has told the
Journal.
Slack shareholders are due to receive $26.79 in cash and 0.0776
Salesforce share for each share of Slack stock. That equates to
$45.52, based on Salesforce's closing share price Tuesday, or more
than 50% above Slack's closing price the day before the Journal
broke news of the talks last week. The $27.7 billion price tag is
so-called enterprise value, which typically includes net debt, and
is based on Salesforce's closing price Monday.
The companies said the deal is expected to close in Salesforce's
fiscal year that begins in February.
Salesforce has been trying for years to expand into providing
the kind of workplace collaboration tools Slack offers. In 2010, it
launched a private social network, Chatter, to help companies to
collaborate. In 2016, it bought cloud-document collaboration app
company Quip Inc. for more than $500 million. Neither product has
been meaningfully successful for Salesforce, according to
analysts.
Slack went public last year through an unconventional method
called a direct listing, in which the company simply floats its
existing shares onto an exchange and lets the market determine the
price without investment banks serving as gatekeepers.
Slack in recent months failed to spark the kind of investor
excitement enjoyed by other business-software companies more
closely associated with the boom in videoconferencing, such as
Microsoft and Zoom Video Communications Inc.
During the pandemic, Microsoft has aggressively pushed its Teams
software suite that includes Slack- and Zoom-like features. Its use
grew to more than 115 million last month from 32 million daily
active users at the beginning of the pandemic in March. Microsoft
packages Teams free with its Office 365 suite.
Slack stopped updating its daily active user number late last
year when it reached 12 million.
The Slack deal isn't the first time Mr. Benioff has spent
heavily to expand Salesforce. Last year, the company made its
biggest purchase before Slack, spending around $15 billion in stock
for data-analytics platform Tableau Software Inc. And a year
earlier, the company shelled out more than $5 billion in what was
then its largest deal ever for MuleSoft to help customers connect
data from across different systems.
Last year, Salesforce said it was seeking to reach $28 billion
in annual sales in the 2023 financial year. It had $16 billion in
sales in its most recent year, while Slack had $630.4 million in
annual sales in its latest financial year. Salesforce's most
immediate rivals are much bigger. Microsoft had $143 billion in
annual sales and Google's parent had about $162 billion in revenue
in the latest financial year, principally from its advertising
business.
Like many big-ticket deals, this one comes with risks given the
cost. Salesforce in 2016 bought cloud-document collaboration app
company Quip Inc. for more than $500 million to expand the services
it could offer. But the product hasn't attracted a wide following,
according to analysts.
Salesforce and Slack have already been partners. But by owning
Slack, Salesforce's Mr. Taylor said, Slack's software could become
the main interface customers use to access Salesforce's wider
tools.
Also Tuesday, Salesforce posted earnings for the quarter ended
Oct. 31. The company reported sales of $5.42 billion in the period,
up from $4.51 billion the year prior, generating net income of
$1.08 billion. Wall Street expected sales of $5.25 billion and net
income of $700 million, according to FactSet.
It lifted its full-year sales outlook to $21.10 billion to
$21.11 billion. The high end of its earlier guidance was $20.8
billion. Sales next fiscal year should reach $25.45 billion to
$25.55 billion, Salesforce said, including $600 million linked to
Slack.
Slack also reported its fiscal third quarter results Tuesday, a
week earlier than anticipated, in conjunction with the deal. It
posted sales of $234.5 million and a net loss of $68.4 million
compared with sales of $168.7 million and a net loss of $89.2
million for the year-ago quarter. Analysts were estimating $224.8
million in sales and a net loss of $86.2 million for the quarter,
according to FactSet.
Salesforce worked with Bank of America Corp. as its financial
adviser and got legal advice from Wachtell, Lipton, Rosen &
Katz and Morrison & Foerster LLP. Slack's financial advisers
were Qatalyst Partners LP and Goldman Sachs Group Inc., and Latham
& Watkins LLP and Goodwin Procter LLP acted as legal
counsel.
Write to Aaron Tilley at aaron.tilley@wsj.com
(END) Dow Jones Newswires
December 01, 2020 19:50 ET (00:50 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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