NetSuite Stock Rises After Shareholder Suggests Higher Bid

  • T. Rowe Price wants higher offer to tender NetSuite shares
  • Oracle has said current bid is ‘best and final’ price

NetSuite Inc. shares rose slightly Friday after a key shareholder suggested that Oracle Corp. could pay a higher price as the deadline looms for investors to decide on whether to endorse the deal.

Oracle agreed in July to buy NetSuite, one of the first cloud computing companies, for about $9 billion to gain market share and compete with rivals like Salesforce.com Inc. and Microsoft Corp. But it has had trouble persuading some of NetSuite’s biggest investors to tender their shares.

On Friday, T. Rowe Price said it wouldn’t support the deal at the current offer price of $109 and wanted Oracle to pay $133 per share instead. Oracle Chief Executive Officer Mark Hurd has said his company has made its “best and final” offer, and will “move on to other things,” if NetSuite shareholders don’t tender their shares. Advanced Micro Devices Inc. gained Friday on speculation that Oracle may go after it instead.

Oracle’s offer for NetSuite “is in-line with similar deal valuations, which gives Oracle’s board little flexibility to raise the bid,” analysts Anurag Rana and Mandeep Singh at Bloomberg Intelligence said in a note. “If NetSuite shareholders reject the sale, the company may not see a suitor any time soon.”

Earlier this month, Oracle extended its tender offer to Nov. 4, saying that would be the final deadline for shareholders to make their decision on the deal.

Reaching Out

If Oracle doesn’t agree to the higher price, Robert Sharps, vice president at T. Rowe, said his firm is comfortable with NetSuite staying independent.

“Part of the reason we decided to send a letter yesterday was to let not only Oracle, but also the marketplace, know that ‘Look, we believe there is a price that makes sense, it’s just higher than $109,’” he said. “We’re simply trying to be good fiduciaries and practice good corporate governance and represent our underlying investors to the best of our ability.”

Sharps said the firm isn’t suggesting to any other holders whether to tender shares for the deal. Still, he said, “I do know that there are other holders that share our view, based on kind of my read of the situation.”

He said he’s not aware that Oracle has reached out to T. Rowe since the letter was sent.

NetSuite shares fell as much as 4.5 percent on Friday before climbing to gain about 1 percent to $95.02 at the close in New York. The shares had fallen four straight days before T. Rowe’s letter became public.

“It may be up modestly because there’s some hope now that there’s a price at which the parties can agree that this deal makes sense for both the buyer and the unaffiliated shareholders,” Sharps said.

An Oracle spokeswoman couldn’t immediately be reached.

Financial website Zero Hedge reported Friday that Oracle executives have met with counterparts at AMD -- long a struggling chipmaker in the shadow of Intel Corp. -- to discuss a tie-up. That report, which cited sources in Silicon Valley without giving their names, sent shares in the chipmaker up 1.3 percent to $7.20 at the close.

The report in Zero Hedge said an agreement for AMD would help Oracle take on Intel and capture value linked to anticipated growth in augmented reality and virtual reality. Sales of Oracle’s own hardware products fell 12 percent in the quarter ended Aug. 31.

Higher Price

As for NetSuite, it’s not clear that $109 is the final price, according to Brad Reback, an analyst at Stifel Nicolaus & Co. He cited another big acquisition, PeopleSoft, more than a decade ago. During the process, Oracle eventually raised the price for the software company in 2004.

The NetSuite deal requires the approval of a majority of shares that aren’t held by Chairman Larry Ellison, who has about 45 percent of shares with related parties -- along with executive officers and directors. T. Rowe Price owns about 18 percent of NetSuite shares, Sharps said.

“While it is entirely possible that Oracle may pull the bid if the tender expires at midnight next Friday, we continue to believe that Oracle will ultimately acquire NetSuite in the next few quarters and likely at a price higher than the $109/share price on the table today,” Reback wrote Friday in a note to investors. “We have seen this movie before.”

The companies could hold talks in the coming days to find a price that’s between $109 and $133, he said. There is also a chance that insiders, including Ellison, could get the agreed-to price of $109 while the “unaffiliated” shareholders might get a higher price, he said. Even if neither side budges, Oracle could still come back within the next few quarters, the analyst said.

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