Oracle Corp. agreed to pay $9.3 billion for a cloud-computing pioneer that counts Larry Ellison as a major investor, using its second-largest acquisition to try to catch up in a key area where it has lagged.
Oracle said it is paying $109 a share in cash for NetSuite Inc., a 19% premium to the company’s closing price Wednesday of $91.57.
The deal is raising questions about the role of Mr. Ellison, Oracle’s chairman, who is the biggest shareholder in both companies.
Mr. Ellison owns 27% of Oracle’s common shares, according to a September 2015 regulatory filing, a stake worth today about $47.6 billion. Entities owned by him or his family held nearly 40% of NetSuite’s common shares as of April, according to regulatory filings, a stake worth $3.5 billion at the acquisition price.
Cowen & Co. analyst J. Derrick Wood noted the “high degree of litigation risk for Larry Ellison” in a Wednesday research note contemplating Oracle’s possible acquisition of NetSuite, particularly if Oracle paid a multiple higher than its historic transactions for similar cloud software companies. By Mr. Wood’s analysis, Oracle paid 11 times NetSuite’s previous 12 months’ revenue, whereas it paid about 6.5 times trailing 12-month revenue for its last six similar acquisitions.
The Ellison family’s stake in NetSuite means chances for a rival bidder to emerge are “slim to none,” said Stifel Nicolaus Co. analyst Brad Reback.
Given the multiple Oracle offered, NetSuite’s shareholders may be hard-pressed to demand a better deal, he said.
Oracle said in its press release that the deal would close only if owners of a majority of NetSuite shares not held by Mr. Ellison and his family approve the transaction. It also said a committee of Oracle’s independent directors evaluated and negotiated the deal.
There is little more Oracle and NetSuite could have done to counter the conflict of interest perception, other than not do the deal, said Charles Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware. “It doesn’t dissipate the cloud, but it lifts it,” Mr. Elson said.
It wouldn’t be the first time Mr. Ellison has dealt with conflict-of-interest allegations in an Oracle acquisition.
Three years ago, Oracle settled a shareholder suit related to its acquisition of Pillar Data Systems, a company that was largely bankrolled by Mr. Ellison.
The 19% premium offered by Oracle for NetSuite is lower than the average 26% premium for all technology mergers and acquisitions valued above $1 billion year to date, according to Dealogic.
However, rumors of the acquisition cut into the premium, pushing NetSuite’s shares up from $72.19 a month ago. NetSuite hit its all-time high closing price of $115.57 in February 2014.
The deal, among the largest in Oracle’s history, reunites Mr. Ellison with Zach Nelson,NetSuite’s chief executive, who ran Oracle’s marketing operations in the 1990s.
Oracle declined to say whether the deal would lead to executive changes or layoffs. NetSuite didn’t immediately respond to a request for comment.
Both companies provide business applications that help automate operations in various areas including finance and human resources, collectively called enterprise-resource planning.
NetSuite is among the leaders in providing such software via subscription-based, on-demand computing, and buying it will help Oracle compete against SAP SE, the leader in ERP software, according to Gartner Inc.
Oracle said the deal immediately would add to its earnings, on an adjusted basis. In a statement provided to The Wall Street Journal, Oracle CEO Mark Hurd said his company would “accelerate the pace of innovation” and “expand the global reach” of NetSuite.
While the two companies offer some overlapping products, NetSuite has made inroads with smaller corporate customers, where Oracle hasn’t been as strong, Mr. Reback said. NetSuite, which has modest international sales, will benefit from Oracle’s global sales operation, he said.
Moreover, NetSuite has delivered applications via cloud computing through its entire history. Oracle, widely considered a laggard in the cloud, stands to gain engineering experience in that area through the acquisition.
In 2008, near the dawn of the shift to cloud computing, Oracle’s Mr. Ellison wasdismissive of the phenomenon, mocking the phrase as marketing “gibberish.” Oracle since has developed its homegrown cloud services, but it is battling cloud-native competitors such as Salesforce.com Inc.and Workday Inc. Oracle also is fighting to keep pace with giants, including Microsoft Corp. and Amazon.com Inc., which have built large businesses running customers’ computing operations in the cloud.
In its most recent quarter, Oracle added more than 1,600 customers in its business ofselling access to cloud-based applications, known as software as a service, and 2,000 customers in the business of selling access to cloud-based tools to program and manage apps and analyze data, called platform as a service. Revenue for its cloud segment climbed 66%, or 68% in constant currency terms, to $690 million.
The NetSuite deal is expected to close this year, subject to regulatory and shareholder approval.
NetSuite shares fell 1.6% in after-hours trading after a rise of 18% earlier in the day, while Oracle shares were little changed.
Oracle has a history of making acquisitions. The largest, recent multibillion deal wasOracle’s $5.3 billion purchase in 2014 of Micros Systems Inc., which sells internet-connected cash registers. Oracle’s other large acquisitions include its acrimonious hostile takeover of PeopleSoft Inc. for $10.3 billion in 2004, another hostile purchase of BEA Systems Inc. for $8.5 billion in 2008, and its 2009 deal to buy Sun Microsystems Inc. for $7.4 billion.