Larry Ellison 'Lockboxes' NetSuite Shares


NetSuite still hasn't set a date for its long-awaited IPO, but the company filled in more details with an updated regulatory filing on Tuesday, which disclosed the news that majority owner Larry Ellison plans to transfer the bulk of his holdings to a "lockbox" company. The move aims to counterbalance the influence Ellison is able to wield over NetSuite so long as he continues serving as an officer or director of Oracle.

Ellison, who provided the seed money for ex-Oracle employees to launch NetSuite, owns 639.3 million shares, 60 percent of the company. Those shares had been held by Tako Ventures, Ellison's private investment company. Tuesday's filing said Tako's shares will be transferred to a new entity with governing provisions that "neutralize, in certain situations," the voting power of Ellison's shares.

The gist of the filing's legalese is: the new entity will not be able to sell NetSuite shares except to fund charitable gifts, cover its tax obligations, or participate in a total shareholder sell-off if NetSuite is acquired. The entity cannot be dissolved as long as Ellison remains an officer of Oracle. If Ellison dies, the entity's assets will be transferred to the Ellison Medical Foundation or another designated charity.

As part of his stock restructuring, Ellison is loosening his grip on NetSuite's board of directors. Tako Ventures officer Philip B. Simon recently stepped down from NetSuite's board, and once NetSuite completes its IPO, Ellison will lose his contractual right to appoint NetSuite board members.

On any matter that comes before shareholders, the entity will vote its shares in proportion to the voting by other stockholders. Except -- and it's a big "except" -- if the matter under consideration is a potential NetSuite acquisition or liquidation. If that kind of deal comes up for vote, Ellison's entity will vote its shares as he directs. If anyone wants to buy NetSuite, they'll need Larry Ellison's okay to do it.

Hosted ERP software vendor NetSuite has a complex relationship with Oracle, with whom it competes for customers in the SMB market. NetSuite's IPO filing details a dizzying array of slight-of-hand legal maneuverings designed to formally distance the two companies, though it's clear that a spider web of connections continues connecting their principals.

In its initial IPO filing, NetSuite disclosed that it loaned $2.2 million to CTO and Chairman Evan Goldberg in 2005, a sum he finished repaying on June 5, 2007 -- the same day he received a loan for that precise amount from "Octopus Holdings," another of Larry Ellison's investment companies. In this week's filing, NetSuite reported that Goldberg has borrowed an additional $2.5 million from Octopus, a loan dispersed Oct. 5.

Of course, convoluted arrangements don't faze Ellison, who likes to have a tentacle in every pocket of the software industry. There's a reason he named his primary investment vehicle "Tako" -- the Japanese word for octopus.