ORCL Oracle Corp

Shareholder concerns that offer undervalues cloud-computing firm threaten to derail bid

By Jay Greene 

Oracle Corp. is extending the deadline to complete its $9.3 billion deal to buy NetSuite Inc. by one more month, after having received only about a quarter of the shares necessary from the cloud-computing pioneer's stockholders.

Concerns by NetSuite's largest institutional shareholder, T. Rowe Price Group Inc., that Oracle's offer of $109 a share undervalued the company, are apparently derailing the deal. A spokesman for T. Rowe declined to comment.

Oracle -- which wants to buy NetSuite to extend its cloud-software offerings, a market segment where Oracle widely has been perceived as a laggard and is racing to add new services -- said the Nov. 4 deadline would be the final extension.

"In the event that a majority of NetSuite's unaffiliated shareholders do not tender sufficient shares to reach the minimum tender condition, Oracle will respect the will of NetSuite's unaffiliated shareholders and terminate its proposed acquisition," the company said in a news release.

Oracle needs 20.4 million shares to be tendered to close the deal. As of Thursday, only 4.6 million shares had been tendered.

NetSuite shares fell 3.4% to $105.61 in midday trading in New York, while Oracle shares slipped 0.2% to $38.66.

Oracle last month had extended the tender offer to Oct. 6 "to facilitate the completion of outstanding antitrust reviews." In September, Oracle received the final antitrust clearance needed, from the U.S. Department of Justice.

Both companies provide business applications that help automate operations in areas including finance and human resources, collectively called enterprise-resource planning.

The deal has been complicated by Oracle executive chairman Larry Ellison's substantial stake in NetSuite, raising the issue of conflicts of interest. In a September regulatory filing, NetSuite said Mr. Ellison had an "indirect beneficial ownership of approximately 39.5%" of NetSuite's common stock, making him the company's largest investor.

From an Oracle shareholder's point of view, Mr. Ellison's majority stake in NetSuite may influence him to support Oracle overpaying for the acquisition. From a NetSuite shareholder's point of view, his holdings may scare off other bidders.

To address such concerns, Oracle appointed a committee of independent directors to oversee its side of the deal. Moreover, the two companies agreed that the transaction must be approved by owners of a majority of NetSuite shares not held by Mr. Ellison and his family, giving independent NetSuite shareholders more clout in approving the deal.

Last month, T. Rowe notified the company that it wouldn't tender its 14.5 million shares in favor of the deal. The firm has increased its stake since a June 30 regulatory filing, when it held nearly 12.2 million shares that accounted for slightly more than 15% of NetSuite's outstanding stock at the time.

In a letter to NetSuite's board, T. Rowe said the $109 per share offered by Oracle undervalued the company, in part because "potential synergies" in cloud computing could be realized by Oracle when the deal is completed.

At the time, Oracle declined to comment on T. Rowe's concerns, and NetSuite didn't respond to a request for comment. But in a regulatory filing, NetSuite noted that its board "unanimously reaffirmed its recommendation that stockholders accept Oracle's offer and tender their shares."

Corrections & Amplifications: Oracle in July agreed to pay $9.3 billion for NetSuite. An earlier version of this article misstated the deal's value.

Write to Jay Greene at Jay.Greene@wsj.com

(END) Dow Jones Newswires

October 10, 2016 02:48 ET (06:48 GMT)

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