Oracle to get cloud influence with NetSuite deal; Ellison earnings

© Reuters. The ticker symbol for Netsuite Inc. is shown on a screen at the post where it is traded on the flooring of the NYSE

By Malathi Nayak and Anya George Tharakan (Reuters) – Oracle Corp (N:-RRB- said on Thursday it would buy NetSuite Inc (N:-RRB- for about $9.3 billion, a deal that offers it a larger share in the fast-growing cloud computing business and also implies a big payday for billionaire Larry Ellison. In addition to being Oracle’s executive chairman, entities Ellison beneficially owns hold about 40 percent of NetSuite’s shares since February, according to a regulatory filing. These would deserve about $3.5 billion if the offer closes. Corporate governance specialists stated his links to both companies would increase scrutiny of the offer, but added its structure and strategic sense for Oracle implied it would likely pass. “Individuals care (about governance) when someone makes the incorrect decision,” stated Kevin McManus, vice president of Egan-Jones Proxy Solutions. “However if the merger makes sense for the marketplace, it’s going to be difficult to complain too much.” NetSuite shares closed up about 18 percent at $108.41, just shy of the offer cost of $109 a share in money. Oracle shares increased 0.6 percent at $41.19. “It’s definitely costly from Oracle’s point of view, however it’s easy to understand and it’s justifiable specifically in this environment,” said Morningstar analyst Rodney Nelson, who noted some business in the sector have sold for high multiples. Oracle and NetSuite both offer software application applications that help business automate back end and management operations from technology to human resources. NetSuite’s chief executive, Zach Nelson, was responsible for Oracle’s international marketing from 1996 to 1998. Oracle’s cloud business, which stores business software and information on remote servers, lets the company sell to customers who do not have the budget for on-site hardware and innovation staff. Like rivals SAP SE (DE:-RRB-, Amazon Inc (O:-RRB- and Microsoft Corp (O:-RRB-, Oracle has focused on moving its business toward the cloud-computing model as sales of conventional software licenses struggle. The deal likewise might assist Oracle, which is strongly attempting to construct and offer more cloud-based business software application, play capture up with competitors such as Workday Inc (N:-RRB- and Inc (N:-RRB- that concentrate on cloud-based offerings. NetSuite on Thursday reported strong second-quarter results, with profits up 30 percent on the year and adjusted net income that beat price quotes. Jefferies experts said in a note the deal offers an immediate, considerable entry into the mid-market for business applications however that “the cost paid seems steep.” Oracle likewise has acquired companies such as Textura and Opower to increase its competitiveness in the cloud market. Morningstar’s Nelson said NetSuite would be Oracle’s biggest purchase since PeopleSoft more than a years back. The business anticipates the deal to contribute to its adjusted revenues in the very first complete fiscal year after it closes. CORPORATE GOVERNANCE ANALYSIS Oracle stated the examination and negotiation of the deal was led by a committee of independent directors. Closing is conditional on investors tendering a bulk of the NetSuite shares not owned by executive officers, directors or individuals affiliated with Ellison and his family. Analysts said this structure was used to resolve the governance concern and increase the possibility of its approval. “A regulative evaluation and shareholder suits are most likely offered the family’s ownership stake. However, we don’t see these as material dangers to the transaction going through,” BTIG analyst Joel Fishbein composed in a note to clients. Paul Hodgson, an independent governance consultant, stated a factor in the governance argument is whether Oracle paid too much. “If it did, then that is a dispute of interest. If it paid what the market considers a fair cost, then it’s fine,” he said. Because Ellison’s ownership is all the general public domain, the problem in unlikely to be a holdup for the transaction, stated Peter Bible, primary risk officer at EisnerAmper Accountants and Advisors.

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