Oracle Is Not NetSuite

Oracle’s (NASDAQ:ORCL) Chief Executive Officer Larry Ellison appears to be a lead investor at a soon to be issued IPO called NetSuite. Reports indicate that he and his children through trusts, control approximately 74% of Netsuite. The IPO is expected to raise somewhere around $75 million. Larry Ellison has already helped raise approximately $125 million privately.

Everyone expects Mr. Ellison to be very prominent at NetSuite and not just a passive investor making a few bucks on a good idea. Larry Ellison is reported by Forbes magazine to be the 11th richest man on the planet. He and his family are not wanting for money.

Eyebrows have been raised by the potential conflict of interest. Why is this entity not being folded into Oracle? Which horse is Ellison on? Which horse do investors want to be on?

What we need is a public statement containing an explanation as to why this will not be a conflict of interest. NetSuite apparently will operate in an overlapping market and product line. One of the founders of NetSuite former Oracle Vice President Evan Goldberg also complicates the optics and suspicions. Although it must be said the company was founded in 1998.

Some also point to Larry Ellison’s early involvement in Salesforce (NYSE:CRM). Salesforce while also started by former Oracle executives did not really challenge Oracles market position in the same manner. But there is a serial pattern of backing former Oracle executives and allowing them to step out of the Oracle mother ship which supposedly is creating wealth for shareholders. Very disdainful of shareholder interests.

Oracle’s board needs some legal and governance advice. How can they allow such a critical member of Oracle to run around and help start up potential competitors and be actively involved in its management? In this case is Larry Ellison really working for the Oracle shareholder? Is the Oracle board awake to the ramifications and are they mindful of their very real responsibilities to the Oracle shareholder? Or has Larry Ellison just blown this one by them. Looking at the board’s composition, it’s not what you would call heavyweight.

One can see some shareholder class action lawsuits claiming Larry Ellison’s behaviour with NetSuite to be akin to financial treason. This will only distract Oracle and cannot possible help Netsuite. The IPO will be by Dutch auction. We are being reminded that this is just the way Google did it. Sounds promotional to me. It appears that WR Hambrecht & Co will be managing the auction. What questions have they asked?

More importantly what questions are the investors asking? So Larry why even bother. The wealth creation if it does occur does not correlate to the distraction and trouble it will cause. So again why not have some public announcements as to why this is really OK. The Board needs to speak.