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Instant Analysis: Is Oracle's $9.3 Billion NetSuite Deal Smart?

By Chris Neiger – Jul 29, 2016 at 10:53AM

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The tech giant is spending serious cash to make itself more competitive in cloud computing.

Image source: Getty Images.

What happened?

Oracle (ORCL -4.53%) said this week that it’s purchasing cloud-computing company NetSuite (N) for $9.3 billion in cash, or $109 per share. The deal is one of Oracle’s largest in the company’s history, though not as big as its takeover of PeopleSoft in 2004 for $10.3 billion. 

In existence for 18 years, NetSuite was the first company to offer cloud computing applications, and Oracle says the two companies’ services are complementary and each will coexist alongside the other. 

NetSuite CEO Zach Nelson said in a press release that, “NetSuite will benefit from Oracle’s global scale and reach to accelerate the availability of our cloud solutions in more industries and more countries.”  The deal is expected to close sometime this year.

Does this matter to shareholders?

Oracle’s purchase comes at a time when technology companies are focusing more of their attention and money on cloud computing.

The public cloud computing market is currently worth an estimated $203 billion, according to Gartner. That’s got everyone from to Samsung betting that they can take a piece of that pie (Amazon’s arguably taking the most) and Oracle aims grab its own slice with NetSuite.

Oracle said the purchase will be immediately accretive to its earnings on a non-GAAP basis in the full fiscal year. That’s great news for investors who might be concerned with the premium Oracle is paying for NetSuite. The company is effectively paying a 19% premium to the $83 per share NetSuite was trading at a day before the announcement.  

Oracle’s purchase should certainly help the company solidify its position in the cloud computing space. Companies are increasingly looking to the lucrative reoccurring revenue that cloud applications bring. The deal still has to get the approval of shareholders and regulators, but once it does Oracle will be well on its way to building a stronger cloud computing presence.

Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends and Gartner. The Motley Fool owns shares of Oracle. The Motley Fool recommends NetSuite. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Oracle Stock Quote
$79.58 (-4.53%) $-3.77 Stock Quote
$90.96 (-3.37%) $-3.17
NetSuite Stock Quote
Gartner Stock Quote
$349.36 (-0.75%) $-2.63

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