On Tuesday, Reuters reported that Oracle directors gave a go ahead for a million dollar lawsuit filed against Larry Ellison and Safra Catz in a NetSuite deal in 2016. This was made possible by several board members who wrote an extraordinary letter to the Delaware Court.
According to Reuters, in 2017, shareholders led by the Firemen’s Retirement System of St. Louis alleged that Oracle directors breached their duties when they approved a $9.3 billion acquisition of NetSuite – a company controlled by Oracle chair Larry Ellison – at a huge premium above NetSuite’s trading price.
Shareholders alleged that Oracle directors sanctioned Ellison’s self-dealing – and also claimed that Oracle’s board members were too entwined with Ellison to be entrusted with the decision of whether the company should sue him and other directors over the NetSuite deal. In an opinion published in Reuters in May 2018, Vice-Chancellor Sam Glasscock of Delaware Chancery Court agreed that shareholders had shown it would have been futile for them to demand action from the board itself.
Three years after closing a $9.3 billion deal to acquire NetSuite, three board members, including former U.S. Defense Secretary Leon Panetta, sent a letter on August 15th to Sam Glasscock III, Vice Chancellor for the Court of Chancery in Georgetown, Delaware, approving the lawsuit as members of a special board of directors entity known as the Special Litigation Committee.
This lawsuit in legal parlance is known as a derivative suit. According to Justia, this type of suit is filed in cases like this. “Since shareholders are generally allowed to file a lawsuit in the event that a corporation has refused to file one on its own behalf, many derivative suits are brought against a particular officer or director of the corporation for breach of contract or breach of fiduciary duty,” the Justia site explained.
The letter went on to say there was an attempt to settle this suit, which was originally launched in 2017, through negotiation outside of court, but when that attempt failed, the directors wrote this letter to the court stating that the suit should be allowed to proceed.
As per the letter, the lawsuit, which was originally filed by the Firemen’s Retirement System of St. Louis, could be worth billions. It reads,
“One of the lead lawyers for the Firemen’s fund, Joel Friedlander of Friedlander & Gorris, said at a hearing in June that shareholders believe the breach-of-duty claims against Oracle and NetSuite executives are worth billions of dollars. So in last week’s letter, Oracle’s board effectively unleashed plaintiffs’ lawyers to seek ten-figure damages against its own members.”
Oracle directors struggled with its cloud footing and ended up buying NetSuite
TechCrunch noted that Larry Ellison was involved in setting up NetSuite in the late 1990s and was a major shareholder of NetSuite at the time of the acquisition. Oracle directors were struggling to find its cloud footing in 2016, and it was believed that by buying an established SaaS player, like NetSuite, it could begin to build out its cloud business much faster than trying to develop something like it internally.
On Hacker News, a few users commented saying Oracle directors overpaid NetSuite and enriched Larry Ellison.
One comment reads, “As you know people, as you learn about things, you realize that these generalizations we have are, virtually to a generalization, false. Well, except for this one, as it turns out. What you think of Oracle, is even truer than you think it is. There has been no entity in human history with less complexity or nuance to it than Oracle. And I gotta say, as someone who has seen that complexity for my entire life, it’s very hard to get used to that idea. It’s like, ‘surely this is more complicated!’ but it’s like: Wow, this is really simple! This company is very straightforward, in its defense. This company is about one man, his alter-ego, and what he wants to inflict upon humanity — that’s it! …Ship mediocrity, inflict misery, lie our asses off, screw our customers, and make a whole shitload of money. Yeah… you talk to Oracle, it’s like, ‘no, we don’t fucking make dreams happen — we make money!’ …You need to think of Larry Ellison the way you think of a lawnmower. You don’t anthropomorphize your lawnmower, the lawnmower just mows the lawn, you stick your hand in there and it’ll chop it off, the end. You don’t think ‘oh, the lawnmower hates me’ — lawnmower doesn’t give a shit about you, lawnmower can’t hate you. Don’t anthropomorphize the lawnmower. Don’t fall into that trap about Oracle.”