In a brief press release Oracle has upped the stakes in its purchase of NetSuite. They announced that they have extended the deadline for the expiration of their offer to buy the company until November 4th 2016. If it fails to achieve the majority it needs by then it will pull out of the deal. This is not the result that T Rowe Price, the holdout shareholder, was looking for.
Many observers see this as Oracle throwing its toys out the pram because of the blocking tactics used by T Rowe Price. The two sides disagree on the price that Oracle is offering for NetSuite. T Rowe Price wants a higher offer for the shares and since the announcement of the deal on June 30 has increased its stake. However, Oracle’s extension of the deadline has had a negative impact on NetSuite shares. The stock was down more than 4% to US$105.19 by the market close on Friday.
Is this an Oracle masterstroke?
There are two reasons why this could be clever move by Oracle. The announcement has pushed the value of shares down. This might persuade T Rowe Price that further delays will only continue to weaken the share price. The result is that they will accept that the Oracle offer is fair.
The second is more subtle and depends upon whether Oracle does or does not get enough votes. Oracle needs 20,403,928 of the 40,807,854 shares that are not owned by Larry Ellison or his family. As of 00:00 ET of 6 Oct according to the American Stock Transfer & Trust Company LLC, the depositary for the tender offer, only 11.2% of the shares required have been put forward.
At the moment T Rowe Price and others believe that $109 is not a fair price. However, they have not gone as far as issuing an alternative valuation for NetSuite. Oracle is likely to have spent the last few weeks doing more analysis of the financials of NetSuite. With no new offer on the table it is likely that they have come to the conclusion that this is actually a fair offer. If Oracle does push through the deal, that analysis might help any court case that T Rowe Price brings to claw back money.
It will be interesting to see what happens to the NetSuite share price is Oracle pulls out. Should the value of NetSuite fall then T Rowe Price may lose out. Oracle might then make a new bid several months later at a lower price. This may mean that Oracle lose its race with Salesforce for $10 billion cloud revenue. Ellison will not like losing but no one else is going to pick up NetSuite without his approval. While it is unlikely to happen Oracle could also increase the costs of the infrastructure services they offer NetSuite.
Separate from Oracle, NetSuite is performing well. There were rumours of several NetSuite staff wandering around Dreamforce this week looking for new roles. If the acquisition goes away they may feel that the NetSuite culture will remain and they will stay. For many, the two companies are very different. The concern in the mid market is that NetSuite will become Oracle in more than just ownership. NetSuite comes across as friendly to the mid market, Oracle not.
The good news for NetSuite customers is that there is now a deadline of November 4th for the decision. The constant uncertainty of who will own them and what will happen is not making NetSuite account executives and partners jobs any easier.