T. Rowe Price opposition to Oracle deal made public

T. Rowe Price is opposing Oracle’s bid of $109 per share, or $9.5 billion, to acquire cloud computing company NetSuite Inc. The Baltimore fund manager is NetSuite’s largest unaffiliated shareholder, meaning it can have a lot of influence on the deal.

In a letter dated Sept. 6, T. Rowe Price said it believes NetSuite is being undervalued and said it would not give up its shares.

“We do not come across opportunities for compounding growth very often, so we are reluctant to part with a company like NetSuite before we have seen it reach its potential,” T. Rowe portfolio managers said in the letter.

According to SEC filings, the NetSuite board discussed T. Rowe’s letter, unanimously accepted Oracle’s offer and reaffirmed its recommendation that stockholders accept Oracle’s offer and tender their shares. T. Rowe has around 14.5 million common shares in NetSuite and is its largest unaffiliated shareholder, meaning the firm has to give up its shares for the acquisition to go through, giving the company some leverage to get Oracle to increase its offer.

“We built this large position due to our strong conviction that NetSuite represents an attractive long-term investment opportunity for our client,” said T. Rowe in reference to its shares.

“The board has set an important precedent with this transaction, and we would have serious governance concerns about any deal between these parties that does not include this crucial safeguard of unaffiliated shareholders’ interests,” the letter said. “At $109 per share, our preference is for NetSuite to remain independent.”

It is rare for a fund manager’s views on a deal to be public. NetSuite made the letter from T. Rowe public as part of an 8-K filing on Sept. 6.

As T. Rowe wrote in the letter, “It is not our intent to influence the board’s actions or thinking about the proposed transaction.” However, T. Rowe has a fiduciary duty to its shareholders, who can sue if they feel a deal undervalues their shares.

T. Rowe is all too familiar with such actions. During the 2013 buyout of Dell Inc. by its founder and some private investors, T. Rowe said the price Dell was being offered was too low and opposed the deal. However, an error in the firm’s proxy voting system led the firm to accidentally vote in favor of the deal.

T. Rowe funds, trusts and clients later filed a petition with the Delaware Court of Chancery to try and obtain fair value appraisal for its shares. But in May, the court ruled that because of their vote in favor of the deal the petitioners were not eligible to pursue fair value.

The court later ruled on a higher fair value per share for the Dell stock that validated T. Rowe Price’s initial stance. The Baltimore firm went on to pay $194 million, with a $25 million contribution from Dell, to compensate account holders for the difference. The money Dell paid was to settle a lawsuit and, in return, T. Rowe agreed to not appeal previous court rulings that could’ve resulted in a larger payday for the company.

The day after T. Rowe’s letter opposing the NetSuite sale was made public, Reuters reported that NetSuite’s trading price at the time, $109.30, just above price offered by Oracle, was a sign that some investors expected a new deal.

NetSuite’s stock closed at $110.01 on Friday.