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Oracle's Larry Ellison Can Win Lawsuit Even If He Loses

Jef Feeley, Neil Weinberg and Evan Peng
·5 min read

(Bloomberg) -- Oracle Corp. Chairman Larry Ellison testified in a lawsuit on Wednesday that he didn’t call the shots at the company he co-founded and in which he holds a 40% stake and was not involved in discussing the acquisition at the center of the dispute.

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The investor suit, brought in a Delaware court by a pension fund, accuses the 8th-richest American and others at Oracle of overpaying by $3 billion for rival software maker NetSuite Inc. in 2016. Ellison owned 47% of NetSuite at the time of the $9.3 billion deal and held about 28% of Oracle’s shares.

The Firemen’s Retirement System of St. Louis, an Oracle investor, sued Ellison and the company’s board in 2017 to challenge the acquisition. The case, known as a derivative suit, was brought on behalf of the company, so any money recovered will be returned to Oracle. The company didn’t respond to an email and phone call seeking comment on the case.

A win by the shareholders could force changes to management or the board, or result in an award that would boost the value of the company. As a significant shareholder, Ellison would benefit from any increased value in the company, but that might be offset by any amount he’d be forced to pay -- although payouts are often covered by insurance, said Eric Talley, a professor at Columbia Law School who specializes in corporate and transactional law.

Appearing remotely, Ellison was pressed repeatedly on the plaintiff’s assertion that he remained Oracle’s chief decision-maker even after stepping down as chief executive officer in 2014 and becoming chief technology officer. Lawyers played clips of his successor as CEO and erstwhile boss, Safra Catz, in which she suggested Ellison continued to hold sway.

“Larry Ellison is it,” Catz was shown saying in a 2018 excerpt. “Don’t let titles fool you.”

Ellison, speaking calmly, said Oracle’s board and top managers didn’t defer to him after he stepped down as CEO, adding that there were many instances in which he did not get his way. “The idea that these people just blindly do what I tell them is just not true,” he testified.

Under questioning earlier in the day from a defense lawyer, Ellison also said that he had recused himself from discussions at both companies related to the NetSuite acquisition.

The billionaire said under cross-examination by fund lawyer Randy Baron that he stepped back from the NetSuite deal and gave up his rights to block higher offers for the software maker to eliminate any appearance of a conflict.

“I would have been very vulnerable if I didn’t recuse myself on both sides of this transaction,” Ellison said.

The trial in Delaware Chancery Court got under way last week and Ellison appeared by video after some his defense lawyers tested positive for Covid-19. Getting an executive of Ellison’s stature on the stand in a shareholder suit trial is fairly unusual, but not unique. Tesla Inc. founder Elon Musk -- a friend of Ellison’s -- spent two days in a Delaware court last year testifying to defend his takeover of SolarCity, which shareholders claimed he pushed for his own benefit rather than theirs. Musk won.

While not in the public eye as much as Musk, Ellison is worth $92.6 billion, according to the Bloomberg Billionaires Index. His fortune has almost doubled since 2019 as Oracle stock has jumped. He’s also benefited from owning a stake in Tesla that now exceeds $12 billion. Ellison joined the board of Tesla in 2018.

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The suit accuses Ellison, Oracle Chief Executive Officer Catz and director Renee James of orchestrating the combination when NetSuite’s sales were slowing because of increased competition from Oracle to unfairly benefit Ellison and his family. The fund also alleges a majority of Oracle directors deceived investors about Ellison’s role in the NetSuite acquisition process.

An Oracle executive floated the idea of buying NetSuite at a January 2016 Oracle board retreat at Ellison’s estate in Rancho Mirage, California, according to a court filing. Because of his stake in the target, Ellison recused himself from discussions about the deal, but didn’t leave the room, the pension fund claims. Catz and NetSuite executives reached a deal at a price of a $109-a-share, which amounted to a more than 42% premium over the target’s share price, according to the complaint.

‘Best Deals’

Ellison and the other defendants counter the company set up a special board committee to evaluate the NetSuite deal and address the conflict allegations. That group held 15 meetings about the buyout; Ellison didn’t attend any of them, according to Oracle’s court filings.

The committee hired the investment firm Moelis & Co to review the deal concluded the value was “fair from a financial point of view to the company,” the filings said. “Oracle’s acquisition of NetSuite, Inc. was not merely a valid exercise of business judgment; it was one of the best deals Oracle has ever made.”

Since the 2016 NetSuite deal, Oracle has acquired 22 more companies. Most recently, it paid $28.3 billion for health care records provider Cerner Corp. to try and build inroads in the health care industry, which has been comparatively slow to adopt cloud database technology.

The defense also belittled the fund’s allegations Ellison used Catz and James as his pawns to engineer the deal in a way that unduly benefited the billionaire and his family. “It would make no sense for Ellison to risk his far more significant Oracle investment -- and his reputation/legacy -- by causing Oracle to engage in a conflicted and value-decreasing transaction, just to save his much-smaller investment in NetSuite,” according to the brief.

To make out their case under Delaware law, the fund must prove to the judge that Oracle’s buyout of NetSuite wasn’t “entirely fair,” and Ellison, Catz and James violated legal duties to shareholders by overpaying for the software maker.

Judge Sam Glasscock III is hearing the case in Georgetown, Delaware. He’s expected to hand down a decision later this year.

The case is In Re Oracle Corporation Derivative Litigation, 2017-0337, Delaware Chancery Court (Wilmington).

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