The Delaware Court of Chancery’s Vice Chancellor ruled entirely in favor of Cornerstone Research’s clients, the defendants in this high-profile derivative lawsuit.
Retained by Latham & Watkins LLP and by Young Conaway Stargatt & Taylor LLP
Oracle Corporation (Oracle), a leading provider of licensed and cloud-based enterprise applications and infrastructure offerings, announced a tender offer in July 2016 for NetSuite Inc. (NetSuite), a provider of ERP cloud-based software to small and medium-sized businesses. Oracle offered $109 per share, for a total value of $9.3 billion, and the deal was consummated in November 2016.
Plaintiffs alleged that Larry Ellison, founder and CTO of Oracle and a major shareholder in NetSuite, and Safra Catz, co-CEO of Oracle, used their influence to cause Oracle to overpay in its acquisition of NetSuite (allegedly to benefit Mr. Ellison at the expense of Oracle shareholders). Specifically, plaintiffs alleged that “Oracle had become a major competitive threat to NetSuite” and that the Oracle board of directors was never asked “whether Oracle should buy NetSuite or ‘crush’ NetSuite.”
Based on economic analysis performed by Professor Hitt, Vice Chancellor Glasscock concluded in his ruling that “[a]lthough there was competition between Oracle and NetSuite at the margins, . . . the two were not significant competitors.”
Defense counsel retained Cornerstone Research to support Professor Lorin Hitt of the Wharton School of the University of Pennsylvania. Professor Hitt opined at trial on the economic rationale for Oracle’s acquisition of NetSuite, as well as the limited degree of competition between the two companies.
In May 2023, Vice Chancellor Sam Glasscock III ruled in favor of the defendants. He determined that Mr. Ellison was not a controller and therefore was not liable under the entire fairness standard. He also ruled that neither Mr. Ellison nor Ms. Catz breached their duties of loyalty as fiduciaries of Oracle.
Based on economic analysis performed by Professor Hitt, Vice Chancellor Glasscock concluded in his ruling that “[a]lthough there was competition between Oracle and NetSuite at the margins, . . . the two were not significant competitors.” He cited to Professor Hitt, who testified that in the 9,000 sales opportunities between January 2015 and June 2016, Oracle was present in about 942 opportunities, or 11% of the time, and that Oracle won the contract in the opportunity between 2% to 3% of the time. Professor Hitt further testified that while Oracle and NetSuite did encounter each other, those encounters are relatively rare.
Plaintiffs argued that Vice Chancellor Glasscock should only consider the narrow overlapping market segment where there was increasing competition between Oracle and NetSuite; however, he concluded that “Plaintiffs’ position is logically flawed and incongruent with the data” and that “NetSuite had not abandoned its down-market to push upwards. Plaintiffs’ evidence for this abandonment was a single bullet point on NetSuite market strategy in the notes of an Oracle employee who attended a diligence presentation given to Oracle.”