Please ensure Javascript is enabled for purposes of website accessibility

NetSuite Inc's Shares Soar on News of an Oracle Buyout

By Brian Feroldi - Jul 28, 2016 at 1:18PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Oracle has agreed to buy NetSuite for $9.3 billion.

Image source: Getty

What: Investors in cloud-based enterprise resource planning (ERP) provider NetSuite (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 (ORCL -1.85%) 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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Oracle Corporation Stock Quote
Oracle Corporation
ORCL
$67.04 (-1.85%) $-1.26
NetSuite Inc. Stock Quote
NetSuite Inc.
N

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
327%
 
S&P 500 Returns
116%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.