Ellison puts NetSuite shares in 'lockbox'

Ellison puts NetSuite shares in 'lockbox'

Summary: NetSuite in an SEC filing on Tuesday said that Larry Ellison is putting his shares--all 639,298,039 of them--into a "lockbox" that diminishes his control over the company.The filing is an amendment to NetSuite's current IPO plans.

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NetSuite in an SEC filing on Tuesday said that Larry Ellison is putting his shares--all 639,298,039 of them--into a "lockbox" that diminishes his control over the company.

The filing is an amendment to NetSuite's current IPO plans. According to NetSuite's latest IPO filing:

Mr. Ellison has informed us of his intention to transfer 639,298,039 shares of our common stock (representing all of the shares formerly held directly by Tako Ventures) to a “lockbox” limited liability company which will be formed for the limited purpose of holding the NetSuite shares and funding charitable gifts as and when directed by Mr. Ellison. As of September 30, 2007, those shares represented approximately 60% of NetSuite’s outstanding stock. As part of these arrangements, it is anticipated that the agreement governing the LLC will contain provisions designed to neutralize, in certain situations, the voting power of the NetSuite shares held by the LLC, and that those provisions will not lapse or be subject to change while Mr. Ellison is either an officer or director of Oracle Corporation.

Now why would Ellison do this? A few theories:

  • There's a major corporate governance issue here. I have pretty much assumed that Oracle would buy NetSuite at some point. I still argue that will be the case. But let's say Oracle does make a bid for NetSuite and Ellison's shares aren't in a lockbox. As quick as you can say "tender offer" there would be hackles from Wall Street. Under the previous arrangement Ellison would be buying his own company. Why not head off the hackles now?
  • Oracle doesn't have to buy NetSuite. Let's say at some point in the future Salesforce.com wants to buy NetSuite for a massive premium. Why muddy negotiations with Ellison's control issues?
  • It's good for NetSuite. I'm sure there are some customers out there worried that NetSuite is a de facto Oracle subsidiary. By creating a lockbox, the issue partially goes away.

Topics: Legal, Banking, Enterprise Software

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