Larry Ellison to make $3.5bn from NetSuite purchase

Oracle chairman Larry Ellison, once seen as one of the technology world's main holdouts against the new era of cloud computing, is set to make a personal profit of $3.5 billion (€3.2 billion) from his company's acquisition of cloud company NetSuite, announced on Thursday.

The all-cash acquisition for $9.3 billion, marks Mr Ellison's biggest deal since his purchase 11 years ago of PeopleSoft, which triggered a wave of consolidation among the generation of software companies that preceded the cloud.

The NetSuite deal follows a spate of acquisitions of other cloud software companies this year as a similar round of consolidation sweeps through the new generation, and software companies like Oracle, SAP and Microsoft try to transform into cloud companies.

Mr Ellison has claimed credit for inventing cloud computing in 1998 when he came up with the idea for NetSuite, which was set up to run the software that controls other businesses' back-office functions over the internet. It was founded six months before Marc Benioff, a former Oracle salesman, established Salesforce. com, which is widely credited with pioneering the idea for cloud-based software.

Criticism

Despite his early involvement and near-40 per cent stake in NetSuite, Mr Ellison has publicly criticised cloud computing, dismissing it for many years as a fad, in what was seen as an attempt to defend Oracle’s traditional software business. He later said he had only objected to the jargon-based word the “cloud”.

Oracle has since gone on to appropriate the cloud name for its own business as it tries to convince Wall Street it can make up for a decline in its core database and application software products with its small but fast-growing cloud services. It is now locked in a race with Salesforce to become the first to reach $10 billion in cloud software revenues.

To deal with the potential conflicts of interest, Oracle said a special committee of its independent directors had led the evaluation and negotiation of the takeover, and had approved the deal unanimously on behalf of the board. It also said Mr Ellison would abstain from a NetSuite shareholder vote to approve the deal.

Lawsuit

Oracle was the target of a shareholder lawsuit after buying another company controlled by Mr Ellison, Pillar Data Systems, in 2011. The Oracle chairman later agreed to forgo the $575 million he would have received, if Pillar had met subsequent earnings targets as part of Oracle.

NetSuite’s focus on small- and medium-sized businesses represents a departure for Oracle, whose own collection of database and application software products are aimed mainly at large businesses and governments.

Mark Hurd, Oracle co-chief executive, described the companies' products as "complementary" and said they would "coexist in the marketplace forever".

Oracle’s $109-a-share offer represents a near-30 per cent premium to NetSuite’s closing price on Tuesday, before rumours of a bid approach started to circulate.

Oracle shares were down 15 cents at $40.78 per cent in midday trading in New York, while NetSuite jumped 18 per cent to $108.

– Copyright The Financial Times Limited 2016