It was huge news on Wall Street recently as Salesforce (NYSE:CRM) announced that it’s acquiring Slack Technologies (NYSE:WORK) for $27.7 billion. Naturally, this will have profound implications for all of the stakeholders involved, and specifically for owners of Slack stock.
Recently, I’ve noticed that much of the buzz is about the potential future direction of Salesforce stock. For instance, Jim Cramer went so far as to say that the acquisition deal is “brilliant” and forecast that Salesforce stock will double in price.
Maybe Cramer’s right, or maybe not. Personally, I think that we shouldn’t bury the lead story here, which is that Slack stock owners have a major decision to make.
Since Salesforce expects the Slack acquisition deal to close during Salesforce’s new fiscal year (which commences in February), there’s still time to consider how all of this will impact Slack stockholders.
All in all, investors should expect the net effect to be largely positive.
A Closer Look at Slack Stock
Slack stock began trading publicly in the summer of 2019 at $38.50 per share. However, this stock was definitely not an immediate success story. The share price plunged to $20 and change in late 2019, and actually dipped to a 52-week low of $15.10 in March of 2020.
While the onset of the novel coronavirus took the stock to a low point, the correction didn’t last long. During the summer of this year, Slack stock rebounded to the $40 area.
Yet, this turned out to be a head-fake as Slack stock then stair-stepped its way downwards. By Nov. 10, the share price had tumbled to $24 and change.
That’s quite a roller-coaster ride. The wildest part was yet to come, however, as the announcement of Salesforce’s planned acquisition of Slack recently propelled the Slack stock price to near $43. So, it seems that the bulls lost some battles but eventually won the war.
Now What?
Merger deals can cause confusion, so this is a good time to clear a few things up. Slack stockholders can certainly sell their shares now, but they’re not required to do so.
Surely, it’s tempting to take profits on Slack stock and brag about your gains. Yet, an argument could be made in favor of holding on and awaiting future developments. But what are those developments?
If you’re bullish on the business combination, there’s really nothing to be worried about. According to the terms of the acquisition agreement, for each Slack stock share held, the shareholders will receive $26.79 in cash plus 0.0776 shares of Salesforce common stock.
Based on Salesforce stock’s closing price on Dec. 1, this would amount to $45.50 per share. That represents a premium of 54% since the news of negotiations between Salesforce and Slack first emerged in late November.
A Synergistic Effect
All of this leaves current Slack stock investors with a choice: cut and run, or stay aboard for more potential gains? My opinion would be that it makes sense to stay in the trade as the business combination will have a synergistic and positive effect.
Consider, if you will, what these two companies do. To put it simplistically, Slack is a messaging/communication platform for workers in a company.
Meanwhile, Salesforce’s cloud-based software-as-a-service (SaaS) platform focuses on customer relationship management (CRM). It helps companies connect with their customers (current and prospective) and their business partners.
As Salesforce co-founder and CEO Marc Benioff explains, the business combination is ideally suited for the post-pandemic new normal: “This is a match made in heaven … 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.”
In other words, the combination of these two companies will enable businesses to perform a vast array of tasks online. Remotely connecting workers with each other, and businesses with customers, will be easier than ever.
And it will all come under one umbrella company soon. If I’m correct, then this deal will prove to be era-defining in 2021.
The Bottom Line
Yes, you have the choice of dumping your Slack stock shares today if you’re a current owner of the stock.
However, that’s not your only option. If you appreciate the magnitude of the business combination between Slack and Salesforce, then it’s perfectly okay to hold on for more potential gains.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
