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NetSuite Acquisition to Give Oracle Gains in Cloud Clout

NetSuite Acquisition to Give Oracle Gains in Cloud Clout
A deal, that would give Oracle a bigger share in the fast-growing cloud computing business and also means a big payday for billionaire Larry Ellison, would see Oracle Corp buying NetSuite Inc for about $9.3 billion.
According to a regulatory filing Ellison beneficially owns hold about 40 percent of NetSuite's shares as of February in addition to being Oracle's executive chairman. This stake would become about $3.5 billion if the deal closes.
Corporate governance consultants said that the structure and strategic sense of the deal for Oracle meant it would likely pass and added that Ellison’s links to both companies would increase scrutiny of the deal.
"People care (about governance) when someone makes the wrong decision. But if the merger makes sense for the market, it’s going to be hard to complain too much," said Kevin McManus, vice president of Egan-Jones Proxy Services.
Just shy of the offer price of $109 a share in cash, NetSuite shares closed up about 18 percent at $108.41. Oracle shares rose 0.6 percent at $41.19.

"It's definitely pricey from Oracle's perspective, but it's understandable and it's justifiable especially in this environment," said Morningstar analyst Rodney Nelson. Some companies in the sector have sold for high multiples, he also noted.
Back end and administrative operations from technology to human resources are helped to be automated by software that are offered by both Oracle and NetSuite.
The job of Oracle's global marketing from 1996 to 1998 was handled by NetSuite's chief executive, Zach Nelson.
Clients who lack the budget for on-site hardware and technology staff are also offered and sold such software by Oracle helped by its cloud business, which stores enterprise software and data on remote servers.
As sales of traditional software licenses struggle, Oracle has focused on moving its business toward the cloud-computing model like rivals SAP SE, Inc and Microsoft Corp.
Playing catch up with competitors such as Workday Inc and Inc that specialize in cloud-based offerings would also be possible for Oracle by the deal as the company is aggressively trying to build and sell more cloud-based business software.
With revenue up 30 percent on the year and adjusted net income that beat estimates, NetSuite on Thursday reported strong second-quarter results.

While noting that "the price paid seems steep", Jefferies analysts said in a note that the deal provides an immediate, significant entry into the mid-market for corporate applications.
To increase its competitiveness in the cloud market, Oracle also has acquired companies such as Textura and Opower. Since acquiring PeopleSoft more than a decade ago, NetSuite would be Oracle's largest purchase, said Morningstar's Nelson.
Adjusted earnings in the first full fiscal are expected to be added to by the deal after it closes by the company. 
A committee of independent directors led the evaluation and negotiation of the deal, Oracle said. A majority of the NetSuite shares not owned by executive officers, directors or people affiliated with Ellison and his family would also carry the option of conditional closing for investors. Addressing the governance issue and increasing the likelihood of its approval were the reasons that this structure was used, say analysts.
"A regulatory review and shareholder lawsuits are likely given the family’s ownership stake. However, we don’t view these as material risks to the transaction going through,” BTIG analyst Joel Fishbein wrote in a note to clients.

Christopher J. Mitchell

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