Larry's Steely Grip on Oracle Led To 'Conflicts of Interest' in NetSuite buy-out, Court Told

The acquisition of NetSuite by Oracle was a process "managed by stages" plagued by conflicts of interest, the lawyers of one of the shareholders of Big Red have argued in a case that alleges overpayment of the business for the cloudy company ERP .

NetSuite was acquired by Oracle in 2016 for $ 9.3bn, which is equivalent to $ 109 per share, approximately 60% more than the price of $ 67.36 before the agreement was disclosed.

One of Oracle's shareholders claims that it was a deliberate overpayment for the benefit of Big Red's founder and CTO, Larry Ellison, who also had a 40% stake in NetSuite at that time.

The Southeast Pennsylvania Transportation Authority (SEPTA) filed a derivative lawsuit in Delaware Chancery Court against Ellison in May last year, about six months after the agreement was approved.

The lawsuit also names co-CEO Safra Catz and the three directors on the special committee that signed the merger.

SEPTA claimed that Ellison was able to exercise too much control over the agreement, which alleges that he beat Larry and his family some $ 4.1 billion, due to his position of power in Oracle.

In oral arguments in yesterday's case, Joel Friedlander, on behalf of the shareholders, said Ellison was known to control the business with an iron fist and suggested that board members could not say no to the deal.

Under Law360, Friedlander told Delaware Deputy Chancellor Sam Glassock III that the agreement followed an "artificial" exploration of NetSuite's interest and the "stage-managed" acquisition process.

He argued that, despite moving from Oracle's chief executive to the CTO, "as a practical matter, his [Ellison's] influence has not diminished." Friedlander also suggested that Ellison's notorious "controlled way of thinking" in running his business could explain why the committee members backed the agreement.

In the original SEPTA presentation, the investor said that the three committee members and Catz were in conflict due to years of personal and work relationships with Ellison.

"As the directors know, if they do not approve Ellison's proposals ... they will be eliminated from their lucrative positions," the complaint said.

However, yesterday Oracle's lawyers sought to dismiss the lawsuit. Peter Wald of Latham & Watkins LLP said the agreement was a "playbook" acquisition and that the use of an independent special committee protected him from conflicts of interest.

"All the evidence in the registry is that this was as sterile as possible, and nothing is seen from the other side, but a conspiracy theory," Wald is quoted as saying.

"The board's approach to this transaction is exactly what the courts have encouraged and should continue to encourage." He follows the trial book of this court for a T, to guarantee bargaining under arm's length conditions.

The premise of the case, that the agreement benefited Ellison with the cost of Oracle shareholders, also goes against the concerns at the time of the agreement that NetSuite was selling.

In fact, when the acquisition was proposed, T Rowe Price Associates, the largest non-affiliated shareholder of NetSuite, retracted.

He claimed that Ellison's stake would have postponed other potential investors, and he meant that the NetSuite board had not considered other options.

Vice Chancellor Glasscock is considering the arguments presented in the case presented by SEPTA.