At The Stroke Of Midnight, Oracle's NetSuite Tender Offer Expires

The time is ticking for the shareholders of NetSuite Inc N, as the final extended tender offer from Oracle Corporation ORCL to buy the company at $109 will expire Friday at midnight EST.

The Beginning: July 2015

Late July, Oracle agreed to acquire NetSuite, the “very first cloud company,” for about $9.3 billion. Oracle has been lagging in the cloud arena, which only accounted 10 percent of sales. Buying NetSuite, which became public in 2007, would help the software vendor to effectively compete against salesforce.com, inc. CRM, Microsoft Corporation MSFT and SAP SE (ADR) SAP.

Further, the connection between Oracle and NetSuite dates back to 1998, when Larry Ellison — current executive chairman of the board and chief technology officer for Oracle — co-founded NetSuite along with Evan Goldberg in 1998. Regulatory filings show Ellison and his family owning about 45.4 percent of NetSuite’s common stock.

The Roadblocks

But, the deal hit a roadblock when T. Rowe Price, one of the largest shareholders of NetSuite, opposed the deal and asked for $133 price, which Oracle refused.

According to terms of the Oracle agreement, a majority of NetSuite’s 40.8 million unaffiliated shares, or shares not tied to Ellison and other insiders, must be tendered for the deal to be completed. As of July, T. Rowe Price owned 12.2 million NetSuite shares. The other biggest shareholders include Capital World and Brown Advisory.

But, other than T. Rowe Price, none has publicly opposed the deal.

Original Tender Expiration To Now

As of October 6, the original tender expiration, 4.6 million unaffiliated shares were tendered, representing 11.2 percent of the unaffiliated shares. If the required number of shares isn’t tendered, Oracle will withdraw its offer.

As such, the uncertainty over the deal has weighed on NetSuite shares, which have dropped about 18 percent since October 7 when Oracle said $109 a share would be its final offer.

Also, the falling of NetSuite shares to $90 levels may indicate investors have given up on the deal.

If It Fails

But, the real issue is the strong unlikelihood of any other bidder for NetSuite to arise should the Oracle takeover fall off, particularly given the presence of Ellison as one of the largest shareholders of NetSuite.

But, Oracle has other options even if it terminates NetSuite acquisition, as it may target The Ultimate Software Group, Inc. ULTI, ServiceNow Inc NOW or Splunk Inc SPLK.

In fact, apart from the M&A speculation, Ultimate Software is likely to be the prime beneficiary in the event of the potential collapse of the deal, as concerns of disruption to its NetSuite partnership ends.

If It Goes Through

If the deal happens, it would be Oracle’s second biggest acquisition after it bought PeopleSoft Inc. for $10.3 billion in 2005.

The cloud sector is seeing a lot of M&A in recent times, with salesforce spending more than $2.5 billion for Demandware and Symantec Corporation SYMC’s deal to buy Blue Coat Systems Inc. for $4.65 billion.

The Landmark Move

In May, Oracle itself announced a deal to buy Opower Inc., another cloud-services company, for $532 million. But, the potential acquisition of NetSuite would be a landmark move for Oracle, only if it gets sufficient numbers of shares in its favor.

At the time of writing, shares of Oracle were up 0.59 percent to $38.54 while NetSuite slipped 0.72 percent to $93.20. Thursday, shares of NetSuite were halted after spiking to $94.60 on volume. It later resumed to close the session at $94.