Try as they might, NetSuite Inc. shareholders haven't proven why they deserve more money in a sale to Oracle Corp. They have less than a week to accept reality -- that the $9.3 billion deal Larry Ellison put on the table is as good as it's going to get for any reasonable span of time.
Oracle offered $109 a share for NetSuite back in July, which drew both excitement and skepticism from investors. On the one hand, the price far exceeds the $75 average closing level for NetSuite's stock in the 100 days leading up to the deal. On the other, investors are bound to question a deal in which Ellison is a big shareholder of both the buyer and seller. But in the Oracle chairman's defense, the merger does make strategic sense and the offer is fair.
As of Oct. 6, Oracle had only 22 percent of the NetSuite stock it needs to complete the transaction, and it has extended the deadline for its offer to Nov. 4. But if there was any question as to whether Oracle's management would consider bumping their bid, co-CEO Mark Hurd laid it to rest Wednesday on CNBC with these decisive words: This is their "best and final offer."
NetSuite shares dropped, widening the spread between the bid and its stock price to almost 10 percent. The implied probability of a deal is at 68 percent, though, signaling that there's still more hope than doubt a deal will get done.
There are three things investors should consider. First, the downside is enormous, way more than merger arbitrageurs are currently pricing in. By some estimates, the stock could plunge 30 percent from here -- $97.70 as of 11 a.m. New York time Thursday -- should Oracle's offer fail to win enough support.
Second, Oracle is valuing NetSuite at about 11 times revenue, which is smack-dab in line with other recent software acquisitions, not to mention well above historical valuations for this industry.
Finally, putting out weak results doesn't help your case for demanding a higher takeover premium. Last week, NetSuite reported third-quarter sales that missed estimates and said it won't meet its previous revenue forecast for the year, withdrawing all 2016 projections. Additionally, Cowen analysts noted that NetSuite's short-term subscription billings and total billings were short of their expectations.
Perhaps NetSuite's declining stock price will force the investor holdouts to rethink things. If not, look out below.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Ellison owns 27 percent of Oracle and, with his family and related entities, 45 percent of NetSuite.
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