Edward B. Micheletti is a Partner and Peyton V. Carper is an Associate at Skadden, Arps, Slate, Meagher & Flom LLP. This post is based on their Skadden memorandum and is part of the Delaware law series; links to other posts in the series are available here. Related research from the Program on Corporate Governance includes Independent Directors and Controlling Shareholders (discussed on the Forum here) by Lucian Bebchuk and Assaf Hamdani.
The mere potential for a prominent, highly respected officer, director and minority holder to influence a board’s decision to approve a deal where the minority holder sits on both sides is insufficient to confer controller status and invoke entire fairness review, the Delaware Court of Chancery held post-trial in In re Oracle Corporation Derivative Litigation. [1]
The May 2023 ruling by Vice Chancellor Glasscock also commends the robust process employed by a “well-functioning” independent special committee with independent advisors. Companies and corporate practitioners considering a potentially conflicted transaction can look to Oracle for guidance about how to successfully navigate such a transaction and avoid pitfalls.
Background
Between 2006 and 2015, Oracle Corporation closed over 100 strategic acquisitions. At a January 2016 meeting of Oracle’s board of directors, Oracle management identified Netsuite Corporation as a potential takeover target. Before management’s presentation, Larry Ellison — director, officer, founder and “face” of Oracle — left the room and recused himself from the discussion. Ellison, who also co-founded and served as a director of Netsuite, owned 39.8% and 28.4% of Netsuite and Oracle stock, respectively.
After discussion, the board decided to explore a potential transaction with Netsuite and authorized Safra Catz, Oracle’s chief executive officer, to connect with Netsuite’s executives to gauge interest. When word of the possible acquisition reached Evan Goldberg, Netsuite’s other co-founder, he expressed his displeasure to Ellison. Ellison shared details of Oracle’s strategy for Netsuite post-acquisition and reassured Goldberg that, in the event of a transaction, Oracle planned to retain Netsuite’s management.