What: Investors in cloud-based enterprise resource planning (ERP) provider NetSuite (NYSE:N) should be smiling from ear-to-ear today. Shares are up 18% at 1 p.m. in response to the news that tech giant Oracle (NYSE:ORCL) will be acquiring the company for $9.3 billion in an all-cash deal.
So what: Oracle's takeover offer values NetSuite's shares at $109 each, which represents a 19% premium to yesterday's closing price. The deal, which is expected to close this year, would represent Oracle's second-biggest acquisition ever.
Oracle co-CEO Mark Hurd said, "Oracle and NetSuite cloud applications are complementary, and will coexist in the marketplace forever. We intend to invest heavily in both products -- engineering and distribution." Safra Catz, Oracle's other co-CEO, added in the press release, "We expect this acquisition to be immediately accretive to Oracle's earnings on a non-GAAP basis in the first full fiscal year after closing."
NetSuite CEO Zach Nelson expressed enthusiasm for the deal, stating, "NetSuite will benefit from Oracle's global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries. We are excited to join Oracle and accelerate our pace of innovation."
NetSuite's board has already unanimously approved the transaction and the deal is expected to close before the end of the year. The deal is subject to regulatory approvals and NetSuite stockholders tendering a majority of outstanding shares.
As of the end of May, Oracle held more than $55 billion in cash on its balance sheet, so there's no doubt that the company can easily afford to finance the buyout.
Now what: The rumor mill has been buzzing all month that this deal could be in the works. Those rumors were swirling largely in response to Oracle's $14 billion bond offering at the end of June, a peculiar move for a company that is already swimming in cash. Since Oracle Chairman and co-founder Larry Ellison owns roughly 43% of NetSuite's shares, the company seemed like a natural target.
In a separate press release today, NetSuite announced results from the second quarter that reaffirmed that its growth story is fully intact. Revenue jumped 30% to $231 million, operating cash flow was up 53% to $36.7 million, and non-GAAP net income nearly quadrupled to $6.6 million or $0.08 per share. This marks the 16th quarter in a row of revenue growth of more than 30%. Netsuite canceled its planned conference call.
Once the Oracle deal is complete, it should help to secure Oracle's position as a major player in the move to the cloud. Oracle had previously set an ambitious goal of being the first company to reach $10 billion in total cloud revenue, so adding NetSuite to its empire should go a long way toward helping it get there.
Brian Feroldi has the following options: long January 2018 $33 calls on Oracle and short January 2018 $33 puts on Oracle. Like this article? Follow him on Twitter where he goes by the handle @Longtermmindset or connect with him on LinkedIn to see more articles like this.
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