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Why This Analyst Believes Oracle Is Unlikely To Acquire NetSuite

Why This Analyst Believes Oracle Is Unlikely To Acquire NetSuite

NetSuite Inc (NYSE: N) shares rallied more than 10 percent on press speculations that Oracle Corporation (NYSE: ORCL) was interested in acquiring the company.

However, Cowen’s J. Derrick Wood maintains an Underperform rating on NetSuite, with a price target of $70, citing the unlikeliness of the acquisition.

Acquisition Unlikely

Wood believes there is little merit to reports of Oracle looking to acquire NetSuite due to several factors that make the deal unlikely, apart from the fact that the report was “initially circulated by a fairly obscure media source and does not appear to contain much substance.”

Related Link: BMO Upgrades Oracle To Outperform, Sees 17% Upside

Among the reasons that make the acquisition unlikely:

  • The article that speculated on such a deal asserted that Oracle owned 40 percent stake in NetSuite. Oracle, as a company, does not have any ownership of NetSuite; Larry Ellison and his family together own about 47 percent of the latter company.
  • Secondly, Wood mentioned Oracle has spent about 10 years “rewriting its Fusion software for the modern cloud architecture and it is finally seeing the payoff with significant momentum in its cloud ERP business over the last 12–24 months.”

Does Not Make Sense For Oracle

Therefore, it would not make sense at this point for Oracle to acquire an overlapping product set, given that its own R&D investments are now starting to pay off.

In addition, following the acquisition of Pillar Data Systems in June 2011, a shareholder lawsuit was filed, which led to Larry Ellison giving up 95 percent of his earn-out, making it appear he actually lost money on the deal.

“As such, we do not see ORCL undergoing a similar transaction with N which could result in potential conflict of interest for Larry Ellison,” Wood stated.

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Latest Ratings for N

Oct 2016DowngradesBuyNeutral
Aug 2016DowngradesBuyNeutral
Aug 2016DowngradesBuyNeutral

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