Oracle Corp. Chairman Larry Ellison is slated to testify in a lawsuit in which a loss could still result in a windfall for the company he co-founded and holds a 40% stake in.
The investor suit, brought in a Delaware court by a pension fund, accuses the 8th-richest American and others at Oracle of overpaying by $3 billion for rival software maker NetSuite Inc. in 2016. Ellison owned 47% of NetSuite at the time of the $9.3 billion deal and held about 28% of Oracle’s shares.
The Firemen’s Retirement System of St. Louis, an Oracle investor, sued Ellison and the company’s board in 2017 to challenge the acquisition. The case, known as a derivative suit, was brought on behalf of the company, so any money recovered will be returned to Oracle. The company didn’t respond to an email and phone call seeking comment on the case.
A win by the shareholders could force changes to management or the board, or result in an award that would boost the value of the company. As a significant shareholder, Ellison would benefit from any increased value in the company, but that might be offset by any amount he’d be forced to pay — although payouts are often covered by insurance, said Eric Talley, a professor at Columbia Law School who specializes in corporate and transactional law.
The trial in Delaware Chancery Court got under way last week, and Ellison may appear — likely via videolink — on Wednesday. Getting an executive of Ellison’s stature on the stand in a shareholder lawsuit trial is fairly unusual, but not unique. Tesla Inc. founder Elon Musk — a friend of Ellison’s — spent two days in a Delaware court last year testifying to defend his takeover of SolarCity, which shareholders claimed he pushed for his own benefit rather than theirs. Musk won.
While not in the public eye as much as Musk, Ellison is worth $92.6 billion, according to the Bloomberg Billionaires Index. His fortune has almost doubled since 2019 as Oracle stock has jumped. He’s also benefited from owning a stake in Tesla that now exceeds $12 billion. Ellison joined the board of Tesla in 2018.
The lawsuit accuses Ellison, Oracle Chief Executive Officer Safra Catz and director Renee James of orchestrating the combination when NetSuite’s sales were slowing because of increased competition from Oracle, damaging NetSuite’s stock price and Ellison’s personal stake. The fund also alleges a majority of Oracle directors deceived investors about Ellison’s role in the NetSuite acquisition process.
An Oracle executive floated the idea of buying NetSuite at a January 2016 Oracle board retreat at Ellison’s estate in Rancho Mirage, California, according to a court filing. Because of his stake in the target, Ellison recused himself from discussions about the potential deal, but didn’t leave the room, the pension fund claims.
Catz and NetSuite executives reached a deal at a price of a $109-a-share, which amounted to a more than 42% premium over the target’s share price, according to the complaint.
‘Best deals’
Ellison and the other defendants counter the company set up a special board committee to evaluate the NetSuite deal and address the conflict allegations. That group held 15 meetings about the buyout; Ellison didn’t attend any of them, according to court filings.
The committee hired the investment firm Moelis & Co to review the deal concluded the value was “fair from a financial point of view to the company,” the filings said. “Oracle’s acquisition of NetSuite, Inc. was not merely a valid exercise of business judgment; it was one of the best deals Oracle has ever made.”
Since the 2016 NetSuite deal, Oracle has acquired 22 more companies. Most recently, it paid $28.3 billion for health care records provider Cerner Corp. to try and build inroads in the health care industry, which has been comparatively slow to adopt cloud database technology.
The defense also belittled the fund’s allegations Ellison used Catz and James as his pawns to engineer the deal in a way that unduly benefited the billionaire and his family. “It would make no sense for Ellison to risk his far more significant Oracle investment — and his reputation/legacy — by causing Oracle to engage in a conflicted and value-decreasing transaction, just to save his much-smaller investment in NetSuite,” according to the brief.
To make out their case under Delaware law, the fund must prove to the judge that Oracle’s buyout of NetSuite wasn’t “entirely fair,” and Ellison, Catz and James violated legal duties to shareholders by overpaying for the software maker.
Judge Sam Glasscock III is hearing the case in Georgetown, Delaware.
The case is In Re Oracle Corporation Derivative Litigation, 2017-0337, Delaware Chancery Court (Wilmington).
