What's going on?
Oracle is a massive business software company founded by billionaire Larry Ellison – and it’s agreed to buy a smaller rival, NetSuite, for $9.3 billion (which was also founded by Larry Ellison!). The deal accelerates Oracle’s growth in cloud computing.
What does this mean?
Both companies operate in what is technically called the “enterprise-resource planning” space: think of it like a dashboard that shows things like a company’s inventory, sales pipeline and accounting all in one place. NetSuite offers this software to small and medium sized businesses via a subscription service, while Oracle focuses on building customized versions of the product for the world’s biggest companies.
Why should I care?
For stocks: It’s all about the cloud.
Instead of saving a document to your Mac’s hard drive, you might use a service like Dropbox or Google Drive to save it online in “the cloud”. Well, lots of businesses are moving to the cloud too – it’s a lot cheaper than paying for physical computer storage (e.g. servers that take up office space). NetSuite is touted as the first company dedicated to making business apps for the cloud, and the idea is that an “older” company like Oracle is buying them to speed up the growth of its cloud-based business (rather than building it all itself).
The bigger picture: Larry Ellison’s role raises some eyebrows.
Ellison helped found NetSuite back in 1998 and he (or his family members) still own almost 40% of the shares. Naturally, since he is also the founder and chairman of Oracle, the deal raises some questions about a potential conflict of interest. Steps were taken to mitigate this: an independent committee at Oracle negotiated the deal and a majority of NetSuite’s shareholders that are not Ellison-related must approve the deal. The situation resembles Tesla’s attempt to acquire SolarCity (and Elon Musk’s inherent conflict of interest).