The remarkable lawsuit pitting Oracle against its own board members now suggests Larry Ellison should give back $1.6 billion for the 2016 NetSuite acquisition
- An unprecedented lawsuit is still in the works, in which a shareholder was authorized by Oracle's board to sue its Oracle's board members, including Larry Ellison.
- A new version of the complaint filed this week includes additional information based on internal documents and emails.
- The suit claims that Oracle overpaid by billions for NetSuite when Oracle paid $9.3 billion cash in 2016. Because Ellison was NetSuite's founder and largest shareholder, he was paid about $4.1 billion of that cash.
- The suit alleges that Oracle overpaid by $1.6 billion, implying that if if wins, that's how much they think Ellison should return to Oracle.
- Oracle says there's no merit to the case and that it intends to fight it, even though, if the shareholder's win, Oracle would actually be the main beneficiary.
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As we previously reported, Oracle's board is in the midst of an unprecedented shareholder lawsuit over the company's $9.3 billion cash deal to buy NetSuite in 2016.
An updated, amended version of the suit was filed in Delaware's court of Chancery earlier this week, with fresh details about the origins of the deal and the boardroom drama it caused. And the filing suggests that CEO Larry Ellison should personally be on the hook for the $1.6 billion that the plaintiff shareholder argues Oracle overpaid in the deal.
The new complaint includes emails obtained from an internal company investigation that the shareholder's attorneys believe helps make their case. Among the emails: comments by Oracle executives about "crushing" NetSuite and a curious internal discussion at Oracle reasoning that the deal raised no antitrust issues because Oracle CEO Larry Ellison controlled both companies.
Oracle has consistently said that this suit is without merit and a company spokesperson reiterated that position to Business Insider, vowing to "vigorously defend against these claims."
What's odd about this legal battle is that, as a so-called derivative lawsuit, Oracle's board members are technically being sued on behalf of the company.
Even the judge, Vice Chancellor Glass cock has appeared flummoxed by the situation, writing poetically in December, "In the cryptozoological division of equity's menagerie are a number of rare aves and chimeras ... One unusual denizen is on display here."
And if the latest legal filing is any indication, the strange legal saga may have more surprises to come.
"Love crushing NetSuite"
The complaint claims that Oracle overpaid by billions of dollars when it acquired NetSuite, a company in which Oracle CEO Ellison happened to be the largest shareholder. The lawsuit alleges that the price was quietly arranged by board members loyal to Ellison with an eye to preserving his investment at a time when NetSuit's fortunes seemed to be fading.
According to the shareholder, Firemen's Retirement System of St. Louis, the premium acquisition price for NetSuite was especially odd given how aggressively, and successfully, Oracle had competed with NetSuite prior to the deal. "Love crushing NetSuite!" wrote Oracle Executive Vice Chairman Jeff Henley in May 2015.
And yet, despite the zeal for crushing NetSuite, a later internal email reveals an Oracle executive making the case that the acquisition posed no harm to competition because of the shared Larry Ellison connection.
"The point being that the competitive effect of the merger will be minimal as Larry owns what amounts to a controlling share of both as is. Thus the merger changes nothing," the executive wrote.
Oracle has argued that Ellison recused himself from the negotiation, and the price it paid for NetSuite was fair. In fact, one of NetSuite's largest shareholders, T. Rowe Price spent months fighting the deal claiming that Oracle's offer was too low.
Still, Ellison was NetSuite's founder and major shareholder, so out of the $9.3 billion cash Oracle paid, about $4.1 billion went into his pocket.
A matter of $1.6 billion
Firemen's lawyers calculate that Oracle paid an extra $1.6 billion because, they allege, Oracle's execs didn't work to buy NetSuite for less.
The implication is that's how much money Ellison should personally be on the hook to return to Oracle's coffers should Firemen win the case.
Such an outcome would be reminiscent of a previous case Ellison was involved in. Back in 2011, Oracle agreed to buy another company that was majority owned by Ellison called Pillar Data Systems. Oracle agreed to pay no cash for but to make payments based on the performance of Pillar after it was part of Oracle. Ellison was to get the first payment of $562 million. Shareholders sued and Ellison agreed to forego that payment. In 2019, Oracle shuttered Pillar.
This deal is different in that NetSuite was a cash deal, so shareholders, including Ellison, got paid when the NetSuite deal closed in November, 2016.
Ellison is not the only one being targeted in this suit. The shareholder is suing loosely for "billions" and is also targeting the other Oracle board members involved in the deal as well as NetSuite's CEO Zach Nelson and founder Evan Goldberg. At one point, the shareholder was suing the whole board, but it whittled its defendants in this latest incarnation. It should be noted that Oracle insures and indemnifies its board members, so should the shareholder's win, Oracle's insurance company may actually be the one on the hook to pay up.
Given that Oracle says it's up for a fight and settlement talks have failed once, Oracle may not settle. If that happens, the next step will be a trial.
You can read the latest filing here:
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Oracle NetSuite Derivative Complaint (W0461684xAEBEC) by JulieB188 on Scribd